
Qass/% ^66/ 
Book H t> 



THE ANNALS of 

THE AMERICAN ACADEMY OF POLITICAL 

AND SOCIAL SCIENCE 

Vol. XXXV, No. 3 MAY, 1910 Whole No. 118 



Stocks 
and the 
Stock Market 



Issued Bi-Monlhly by the American Academy of Political and Social Science, Philada, 
PER YEAR, $6.00 y PER No., $1.00 

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ferent securities as well as methods of 
analyzing^ and cornparing the; various 
issues. 

Division II : specializes on Bonds, 
putting emphasis on the points that 
must be mastered by Bond Salesmen and 
Bond House Employees, ■ \ 

Division III treats of Slocks, Stock 
, / Investments and the study of Underlying 
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These nine books retail singly at the following 
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The three first named books are classics of their 
kind dealing with vital fundamental principles under- 
lying the prices of securities and errors, and danger- 
ous methods are clearly indicated and suggestions 
regarding proper methods are offered. 

The Six Volumes of Letters 

on current financial and economic matters cover a 
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Valuable to the Student 

as they demonstrate the importance of applying 
fundamental principles in the correct gauging of the 
course of the security prices. 



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The Academy is under special obligations to Dr. S. S. Hueb- 
ner, Professor of Insurance and Commerce in the University of 
Pennsylvania, for his co-operation in editing this volume. Its 
publication was undertaken at his suggestion; he outlined the 
volume, secured the papers, and edited the manuscripts. 

This volume is published as a complement to the ivork on 
'Bonds as Investment Securities vjhich vuas brought out by 
the Academy in 1907. That book contained twenty carefully 
written papers by authorities of high standing and the demand 
for the volume has been such as to require the Academy to re- 
print the work. It is believed that the book now offered upon 
Stocks and The Stock Market will be found to be an equally 
valuable contribution to the science of business affairs. 

THE EDITOR. 



STOCKS AND THE STOCK MARKET 



THE ANNALS 



AMERICAN ACADEMY 



OF 



POLITICAL AND SOCIAL SCIENCE 



ISSUED BI-MONTHLY 



VOL. XXXV No. 3 MAY, 1910 



Editor: EMORY R. JOHNSON 

Assistant Editor: CHESTER LLOYD JONES 

Editor Book Department, FRANK D. WATSON 

Associate Editors: G. G. HUEBNER, S. S. HUEBNER, CARL KELSEY, 
J. P LICHTENBERGER, L. S. ROWE, WALTER S. TOWER 



PHILADELPHIA 

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36th and Woodland Avenue 

1910 



THE 



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Vice-President Assistant Real Estate Officer 

EDMUND D. SCHOLEY, NELSON C. DENNEY, 

Secretary and Treasurer Assistant Secretary 

SAMUEL E. CARTER, T ELLWOOD FRAME, 

Assistant Treasurer Assistant Secretary 

DIRECTORS 

William S. Grant Samuel Y. Heebner Edward T. Stotesbury 

William L. Du Bois William H. Lambert James C. Brooks 

John Story Jenks N. Parker Shortridge Roland L. Taylor 

Lincoln Godfrey William W. Frazier Levi L. Rue 
John H. Converse 



CONTENTS 



PAGE 

THE SCOPE AND FUNCTIONS OF THE STOCK MARKET 1 

S. S. Huebner, Ph.D., Professor of Insurance and Commerce, 
University of Pennsylvania, Philadelphia. 

THE PURCHASE OR SALE OF SECURITIES THROUGH A STOCK 

BROKER 24 

Eliot Norton, of the New York Bar. 

STOCKS AND THEIR FEATURES— DIVISION AND CLASSIFICA- 
TION 43 

John Adams, Jr., Philadelphia. 

PREFERRED STOCKS AS INVESTMENTS .63 

John Moody, Editor, "Moody's Magazine;" Author of "Moody's 
Analyses of Railroad Investments," New York. 

THE DECLARATION AND YIELD OF STOCKHOLDERS' RIGHTS 72 
B. B. Burgunder, Baltimore, Md. 

CONVERTIBLE BONDS AND STOCKS 97 

Montgomery Rollins, Author of "Money and Investments," 
"Convertible Securities," "Laws Regulating the Investment 
of Bank Funds," Boston, Mass. 

BAROMETRIC INDICES OF THE CONDITION OF TRADE Ill 

Roger W. Babson, Editor, "Babson's Reports on Fundamental 
Conditions," Wellesley Hills, Mass. 

THE SOURCES OF MARKET NEWS 135 

Roger W. Babson, Wellesley Hills, Mass. 

INFLUENCES AFFECTING SECURITY PRICES AND VALUES... 145 
Thomas Gibson, Author of "Cycles of Speculation," "Pitfalls 
of Speculation," New York. 

ECONOMIC CRISES AND STOCK SECURITY VALUES 154 

Arthur Selwyn-Brown, M.A., Ph.D., New York. 

RAILROAD STOCKS AS INVESTMENTS 164 

Carl Snyder, Author of "American Railways as Investments," 
New York. 



Contents 

PAGE 

ELECTRIC RAILWAY STOCKS 175 

Wallace McCook Cunningham, Instructor in Commerce, Uni- 
versity of Pennsylvania, Philadelphia. 

INDUSTRIAL STOCKS AS INVESTMENTS 192 

Edgar J. Meyer, of Eugene Meyer, Jr., & Co., New York. 

STOCKS OF FINANCIAL INSTITUTIONS 197 

L. A. Norton, New York. 

THE WRONGS AND OPPORTUNITIES IN MINING INVEST- 
MENTS 207 

Francis C. Nicholas, Ph.D., Economic Geologist-Mining Engi- 
neer, New York. 

BIBLIOGRAPHY ON SECURITIES AND STOCK EXCHANGES 217 

S. S. Huebner, Ph.D., Professor of Insurance and Commerce, 
University of Pennsylvania, Philadelphia. 



BOOK DEPARTMENT 233 



BOOK DEPARTMENT 
Conducted by FRANK D. WATSON 

Notes, pp. 233-52. 

REVIEWS. 
Alexander — A Political History of the State of New York, Vol. Ill, 

1861-1882. (p. 253) H. V. Ames 

Barker— Great and Greater Britain (p. 254) W. S. Tower 

The Cambridge Modem History. Vol. XI. The Growth of 

Nationalities, (p. 255) W. E. Lingelbach 

The Catholic Encyclopedia. Vols. I-VII. (p. 256) A. C. Howland 

Churchill — Liberalism and the Social Problem (p. 258) C. L. Jones 

Foster — Diplomatic Memoirs. 2 vols. (p. 258) C. L. Jones 

Hedin — Trans-Himalaya. 2 vols. (p. 259) W. S. Tower 

Jevons — Investigations in Currency and Finance (p. 260) . .E. W. Kemmerer 
Korku nov — General Theory of Law. Translated by W. G. 

Hastings, (p. 261 ) T. R. Powell 

Tolman — Social Engineering (p. 262) ) J. P. Lichtenberger 

Trevelyan — England in the Age of Wycliffe (p. 263) A. C. Howland 

Woodruff — Proceedings of the Cincinnati Conference for Good 

City Government and the Fifteenth Annual Meeting of 

National Municipal League (p. 263) L. S. Rowe 



LIST OF CONTINENTAL AGENTS 

France: L. Larose, Rue Soufflet 22, Paris. 

Germany: Mayer & Miiller, 2 Prinz Louis Ferdinandstrasse, Berlin, N. W. 

Italy: Direcione del Giornale Degli Economisti, via Monte Savello 

Palazzo Orsini, Rome. 

Spain: Libreria Nacional y Extranjera de E. Dossat, antes, E. Capdeville, 

9 Plaza de Santa Ana, Madrid. 



Copyright, 1910, by the American Academy of Political and Social Science 

All rights reserved. 



5 



SCOPE AND FUNCTIONS OF THE STOCK MARKET 



By S. S. Huebner, Ph.D., 
Professor of Insurance and Commerce, University of Pennsylvania. 



With the development of large-scale machine production it was 
only natural that there should be a transition from the system of 
private partnership to that of corporate organization, depending for 
its financial existence and support on the sale of bonds and stocks. 
Through the corporate form of organization it became possible to 
combine the small savings of the thousands into huge sums, which 
could then be given a directing force by the great captains of finance 
and industry. The rate at which stocks and bonds have come to 
represent the wealth of the world during the past two decades has 
been so prodigious that our stock exchange markets may be said 
to represent the pulse of our economic life. As Mr. Charles 
Duguid so admirably says, in his work on "The Stock Exchange" : 
"The institution may be defined as the nerve center of the politics 
and finances of nations, because in this market all that makes history 
is focused and finds instantaneous expression. It is worthy of 
being defined as the barometer of their prosperity and adversity, 
for a glance at the tone of this market, whose wares are more 
mercurial than those of any other mart, suffices to indicate their 
condition." 

Numerous authors and statisticians have attempted to explain 
the relative importance of stocks and bonds in the world's wealth. 
Of these attempts that of Mr. Charles A. Conant deserves special 
mention. In an article on "The World's Wealth in Negotiable 
Securities," published in the "Atlantic Monthly" for January, 1908, 
Mr. Conant made a detailed examination of the subject, and while 
admitting that it is impossible to secure sufficient data to arrive at a 
conclusion with absolute precision, he found that the total visible 
outstanding securities issued by American corporations aggregated, 
on June 30, 1905, the enormous total of $34,514,351,382. Of this 
amount $21,023,392,955 represents the par value of stocks, and 
$13,490,958,427 the par value of bonds. These conclusions are 
within conservative limits, because, as Mr. Conant explains, his inves- 

(483) 



2 The Annals of the American Academy 

tigation did not permit the searching out of all small local corpora- 
tions. Since 1905 the aggregate has been very materially increased, 
since as regards New York Stock Exchange securities alone there 
has been added from six hundred million to over one billion dollars 
worth of new securities annually. This enormous mass of securities 
is distributed over the various leading types of corporations as 
shown in the table on the next page. 

Comparing this enormous total of American stocks and bonds 
with the total value of the country's physical property, placed by 
the Bureau of Census in 1904 at $107,104,192,410, it seems that 
securities represent nearly one-third of the nation's wealth. It is 
apparent, however, that a considerable proportion of these securities 
is owned by holding companies, which are themselves represented 
by securities. There is, thus, a duplication of the same capital, 
which must be eliminated in order to ascertain the proportion which 
security values bear to the total value of the country's wealth. Mr. 
Conant's figures show that such inter-corporate holdings of securities 
aggregated, in 1905, approximately $10,120,418,699, thus leaving 
the net par value of American stocks and bonds at $24,393,932,683, 
or approximately 23 per cent of the nation's wealth. These conclu- 
sions are not vitiated if we take into account the market value of 
such securities, because on June 30, 1905, the market value of the 
thirty-four billion dollars worth of securities amounted to nearly 
thirty-five and one-half billion dollars. 

The Distribution of Stock Ownership 

Quite as astonishing as the enormous amount of the country's 
wealth represented by stocks and bonds, is the wide distribution of 
ownership. In 1903 the author published an article on the distribu- 
tion of stock holdings in American railways*, in The Annals of the 
American Academy, in which he showed that the number of persons 
who were direct owners of stock was very much larger than was 
generally supposed. Since that article was published the number 
of stockholders in American corporations has strikingly increased. 
Thus 'the "Journal °f Commerce and Commercial Bulletin," recently 
collected official statistics for no of the largest corporations, with 
a total capital stock outstanding of $7,300,307,267. This investiga- 
tion shows that the stock of these no corporations is owned by 
626,984 stockholders, with an average holding of 116^ shares of the 

(484) 



Scope and Functions of the Stock Market 



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(485) 



4 The Annals of the American Academy 

par value of $100 each, or $11,650. The investigation further shows 
that in 1907, when quotations were unusually low, and when the 
public invaded Wall Street and found stocks upon the bargain 
counter, the total number of stockholders aggregated 639,836, with 
an average holding of 107% shares, although the capitalization then 
only slightly exceeded $6,900,000,000. 

The data offered by the "journal of Commerce" becomes even 
more interesting if it be viewed separately for the railroads and 
industrials. Fifty-four out of the no corporations reporting are 
railroads. They showed a total outstanding capital of $4,157,008,- 
136, owned by 288,160 stockholders, or an average of 5,336 stock- 
holders for each company. During the preceding year, however, 
the capital stock, although aggregating only $3,875,000,000, was 
owned by 304,912 holders. The Pennsylvania Railroad, according 
to the "Journal's" figures, has 55,337 stockholders; the Atchison, 
23,781 ; the Union Pacific, 19,075 ; the New Haven and Hartford, 
16,311; New York Central, 16,292; the Great Northern, 14,307; 
the St. Paul, 12,475; tne Southern Pacific, 11,238; the Southern 
Railway, 11,146; the Baltimore and Ohio, 10,610; and the Northern 
Pacific, 10,500. 

In the case of industrials the "Journal of Commerce" furnishes 
data for fifty-six corporations, with a total outstanding capital of 
$3,143,299,131, and owned by 338,824 stockholders, or an average 
per corporation of 6,050. As compared with the railroads the indus- 
trials show a striking gain in the number of stockholders, there 
having been during the past year, for the no corporations under 
consideration, a decrease of 16,752 railroad stockholders, but an 
increase of 3,900 industrial stockholders. The American Telegraph 
and Telephone Company reports a gain during the last year of no 
fewer than 5,332 holders, the Westinghouse 4,486, Swift and Com- 
pany 2,000, American Tobacco Company 868, and Borden's Con- 
densed Milk 715. The United States Steel Corporation reports 
approximately 100,000 stock owners ; the American Telegraph and 
Telephone Company, 31,702; the American Sugar Corporation, 
18,517; the Western Union, 13,353; American Car and Foundry, 
10,373 ; Swift and Company, 12,000; Pullman Company, 10,431 ; and 
the Westinghouse Company, 8,438. 

The foregoing data becomes all the more important when it is 
remembered that the number of stockholders does not, in all cases, 

(486) 



Scope and Functions of the Stock Market 5 

represent individual holders, but in many cases includes corpora- 
tions. One railway corporation may be the holder of a portion of 
the stock of another railway company, and may itself represent many 
stockholders. Or considerable blocks of such securities may be 
owned or held by trust companies, brokerage offices, life insurance 
companies, fire insurance companies, savings banks, and other invest- 
ment companies, which in turn represent the investments or deposits 
of an enormous number of persons, many belonging to the middle 
and poorer classes. How far this process of subdivision must be 
carried in order accurately to determine the extent to which the 
population of the country is involved in the ownership of its corpo- 
rate securities is difficult to judge. Suffice it to say that enormous 
blocks of securities are held in this way, and that this indirect form 
of investment is rapidly increasing. 

More and more, also, there is a remarkable tendency for the 
investors of foreign countries, especially European, to enter 
foreign security markets in addition to their own. As has been 
well said, the security market is "undergoing the same internation- 
alizing as commerce." In 1907- 1908, British capital was invested 
in foreign securities to the extent of £2,693,738,000 and derived 
therefrom an income of £139,791,000, or 5 20 / 100 per cent. 
Over three billion dollars of British capital is invested at 
present in American railways, returning 125 million dollars annu- 
ally in interest and dividends, to say nothing of the millions invested 
in our industrial and mining securities. The French holdings of 
foreign securities were estimated by M. Neymarck, as far back as 
1900, to aggregate $6,240,000,000, and those of Germany were 
placed at $4,641,000,000, both of which figures have been greatly 
increased since that date. 

The Stock Exchanges of the World 

The enormous mass of corporate stocks and bonds, the wide 
distribution of their ownership among hundreds of thousands of 
persons of all classes, together with the increasing tendency to use 
such securities as collateral for loans, has necessitated the creation 
of a large number of stock exchanges in every important commercial 
country, where securities can be marketed with the greatest conven- 
ience and promptness. By far the majority of American and 
foreign security issues are quoted on organized stock exchanges, 

(487) 



6 The Annals of the American Academy 

and in many instances our leading corporations have their stocks 
and bonds listed, not only on several of the American stock ex- 
changes, but also on the leading exchanges of foreign countries. 
Stock exchanges may be of two kinds, either general, such as 
the London, New York, Paris and Berlin exchanges, where securi- 
ties of all kinds are bought and sold ; or special, such as* the American 
exchanges at Salt Lake City and Colorado Springs, where only 
mining and a few local industrial stocks are listed. In a special 
market letter of March 8, 1910, Mr. Thomas Gibson has included a 
full list of those principal stock exchanges where all classes of 
securities are dealt in. To show how the world's stock exchanges 
have multiplied, because of the enormous increase of corporate 
securities, Mr. Gibson's list is given in full : 

j. United States — New York, Boston, Philadelphia, Pittsburgh, 
Chicago, St. Louis, Kansas City, Denver, San Francisco, Los 
Angeles, Seattle, New Orleans and Baltimore. 

2. British Home Exchanges — London, Birmingham, Liverpool, 

Manchester, Leeds, Bradford, Cardiff, Edinburgh, Glasgow 
and Dublin. 

3. British Empire — In Canada : Montreal, Toronto and Vancouver. 

In Australia: Sydney, Melbourne, Adelaide, Perth, Kal- 
goorlie, Hobart, Lauceston, Ballarat, Newcastle, Brisbane, 
Maryborough and Charters Towers. In New Zealand: 
Christchurch, Wellington and Dunedin. In Straits Settle- 
ments : Singapore. In India : Calcutta, Bombay, Madras and 
Rangoon. 

4. Mexico — Mexico City. 

5. South America — In Argentina : Buenos Ayres. In Brazil : Rio 

de Janeiro and San Paulo. In Chili : Santiago and Valpa- 
raiso. In Peru : Lima. In Uruguay : Montevideo. 

6. Africa — In Cape Colony : Cape Town and Port Elizabeth. In 

Egypt : Cairo and Alexandria. In Natal : Durban. In Trans- 
vaal : Johannesburg and Pretoria. 

7. Asia — In Japan : Tokio and Yokahama. In China : Shanghai and 

* Hong Kong. 

8. Europe (southern) — In Austria: Vienna, Prague and Trieste. 

In Bulgaria : Sofia. In France : Paris, Lyons, Marseilles, 
Bordeaux and Lille. In Greece : Athens. In Italy : Milan, 
Genoa, Turin and Rome. In Hungary: Budapest. In 

(488) 



Scope and Functions of the Stock Market 7 

Portugal: Lisbon. In Roumania: Bucharest. In Spain: 
Madrid and Barcelona. In Servia: Belgrade. In Turkey: 
Constantinople. 
p. Europe (northern) — In Belgium: Brussels and Antwerp. In 
Denmark : Copenhagen. In Germany : Berlin, Hamburg, 
Frankfort, Bremen, Breslau and Munich. In Holland : Am- 
sterdam and Rotterdam. In Norway : Christiania. In Rus- 
sia: St. Petersburg, Warsaw, Moscow and Odessa. In Swe- 
den: Stockholm. In Switzerland: Geneva, Basle and Berne. 
To an increasing extent capitalists are utilizing the services of 
foreign stock exchanges, since the investment field is no longer a 
local one, as formerly, but instead is being rapidly internationalized. 
"The modern systems of long distance telephony, telegraphy and 
cabling," as pointed out by Mr. Gibson, in his aforementioned letter, 
"have made it possible for investors to trade on any of the above- 
named stock markets at will." He goes on to say: "Investors living 
in London, Paris and New York have, of course, some advantage 
over those living in country towns. . . . Nevertheless, the 
affiliation of bankers, stock brokers, and arbitrageurs doing interna- 
tional businesses is so intimate that it is almost as easy for a resi- 
dent of Carlisle, England, Reno, Nevada, or Florence, Italy, to deal 
in stocks on the Russian, Australian and Chinese stock exchanges as 
it is for them to trade on the stock exchanges in London, New York 
and Rome. British investors have had long experience in trading 
on foreign stock exchanges at long range, and German, Dutch and 
French investors are following their example at an increasing rate. 
This tendency of capitalists to look upon the whole world as an 
investment field, instead of the narrow limits of the locality in which 
they live, is rapidly increasing with the recognition of the theory 
of the geographical distribution of investment risks and is a factor 
in the development of international trade." 

Functions of Stock Exchanges 

According to the point of view, our large organized exchanges 
have been described by some as the political and financial nerve 
centers of nations and the barometers of national prosperity and 
adversity ; and by others as "the bottomless pit, and as worse than 
all the hells." The latter description finds favor with people who 
view such markets solely from the standpoint of those who foolishly 

(489) 



8 The Annals of the American Academy 

or dishonestly abuse the facilities which are there afforded. The 
legitimate functions of every important branch of our business or 
political life are often shamefully abused or misused by fools or 
crooks, yet their mistakes or misdeeds do not disprove the utility 
of the institutions in question, but merely suggest a need for im- 
provement and reform. Mr. Charles A. Conant, in speaking of the 
functions of stock exchanges, puts the matter well when he says: 2 
"A moment's reflection might convince such persons that an institu- 
tion which occupies so important a place in the mechanism of 
modern business must be a useful and necessary part of that mechan- 
ism ; but reflection seems to have little part in the intellectual equip- 
ment of the assailants of organized markets. . . . The fact that the 
stock market is sometimes abused by people who go into it in a 
gambling spirit, who know nothing of its purposes and are incap- 
able of understanding the mighty influences which dominate it, 
is no reason for considering it as a harmful excrescence on the body 
politic." 

(i) In enumerating the services rendered by exchanges, chief 
importance must be given to the means they afford of readily trans- 
ferring shares and bonds from hand to hand, an element which is 
vitally necessary to the creation of corporations. Without an 
organized market for corporate securities, the average individual 
holder would stand in a most defenseless position. He could not 
learn their price from day to day, because transactions, if private, 
would not be recorded, might be designed to mislead, and certainly 
would not be representative of the general judgment. He would 
be exposed to a hundred times the fraud of to-day. He would be 
at the mercy of every rumor. He would be unable to place a cor- 
rect estimate of the importance of current events upon the price of 
his securities. He could be easily misled by unscrupulous coun- 
selors into selling his securities far below their fair value. Despite 
the many advantages of the limited liability company, it is also 
certain that most people would be loath to give their money for even 
the highest grade securities, if they had no positive assurance that 
in cas*e of necessity they could, at a moment's notice, and at the 
prevailing price, obtain their value in cash by selling the same in the 
free market which our large exchanges afford. 

To-day, however, every newspaper of any importance in the 

^Charles A. Conant, "Wall Street and the Country." Pages 83 and 87. 

(490) 



Scope and Functions of the Stock Market 9 

country gives daily the quotations of leading securities for the day 
before, and the holder cannot be deceived as to the price. These 
quotations represent the average combined judgment of many 
minds, which is given concrete expression in actual transactions 
on the floor of the exchange. Through the widespread publicity 
of stock exchange quotations the world over, the holders of securities 
are given gratis the combined opinion of the most competent finan- 
ciers as to the value of those securities at present and their prospec- 
tive value in the future. Since these financiers always have in mind 
the future, rather than the present, their initiative in making pur- 
chases and sales will tend to discount the effects of coming events. 
The holder of stocks and bonds, if he be a thinking and observing 
man, is free to disregard these quotations if he chooses ; but if their 
trend is pronounced they may serve as a guide by which he may 
regulate his own action relative to the holding or selling of his 
securities. 

Importance must also be attached to the protection and safe- 
guards which organized stock exchanges give the stock and bond 
holder, in regulating brokerage transactions and maintaining a 
standard of commercial honor among brokers, much higher than 
would otherwise exist. It is not to be wondered at that in the free 
buying and selling of such a vast amount of flexible and easily 
transferable property as corporate stocks, many questionable prac- 
tices should have arisen, which only time will see eliminated. In this 
connection it should be remembered that the constitution of nearly 
every stock exchange defines the object of the exchange as follows: 
"Its object shall be to furnish exchanges, rooms and other facilities 
for the convenient transaction of business by its members, as 
brokers ; to maintain high standards of commercial honor and integ- 
rity among its members, and to promote and inculcate just and 
equitable principles of trade and business." No person can be 
elected to membership until he has signed the constitution of the 
exchange, and by such signature he obligates himself to abide by 
the same, and by all subsequent amendments thereto. The value 
of this organization becomes apparent when we take account of the 
gigantic frauds perpetrated upon innocent investors through adver- 
tising campaigns by persons unaffiliated with any recognized ex- 
change, or by certain members of unorganized curb markets. 

While by no means perfect, the value of many of the stock 

(490 



io The Annals of the American Academy 

exchange regulations (nearly all stock exchanges have similar 
regulations) to the investing public are so evident that more than 
passing mention is unnecessary. Only a few such regulations will 
be noted. 

All stock exchanges provide for the arbitration of disputes 
which may occur between members, and if both parties are willing, 
between members and their customers. They also prescribe rules 
governing the nature of contracts, the making of all offers and bids, 
the registry and transfer of securities on the transfer books of the 
corporations, and the conditions upon which securities may be 
listed upon the exchange for trading purposes. Practically all 
stock exchanges also require that all transactions must be real, and 
that no fictitious or unreal transactions shall be permitted ; that discre- 
tionary orders cannot be accepted by brokers ; and that every member 
of the exchange must keep complete accounts, subject at all times 
to examination by the governing committee or any standing or 
special committee of the exchange, and under penalty of suspension, 
no member may refuse or neglect to submit such accounts, or wil- 
fully destroy the same. Nor may any member, under pain of sus- 
pension (a serious penalty involving not merely the loss of the 
rights and privileges of membership, but also the stigma attaching 
to the member as a factor in the business community) be guilty 
of "any conduct or proceeding inconsistent with just and equitable 
principles of trade." 

Many exchanges stipulate that any broker employed for the 
purchase or sale of securities must keep a record of every transac- 
tion showing the date, number of shares, name of the security, 
price, the broker from whom bought or to whom sold, or for whom 
bought, or for whom sold; and on the day of executing the order, 
must furnish the customer with the name of the broker from whom 
the security was bought, or to whom sold. Non-compliance with 
this rule makes the broker guilty of fraud or false pretence, or 
of acts detrimental to the best interest of the exchange. Nor may 
any member sell securities for his own account, thus nullifying 
the effect of his client's order. Practically all exchanges provide 
that no member, under pain of suspension, shall be guilty of any act 
which the governing committee shall deem "detrimental to the inter- 
est or welfare of the exchange;" that no member shall resort to the 
publication of any advertisements, other than of a strictly legitimate 

(49 2 ) 



Scope and Functions of the Stock Market II 

business character, any act to the contrary being deemed an act detri- 
mental to the interest and welfare of the exchanges ; and that no 
member may be connected, directly or indirectly, by any method 
whatsoever, with any bucket-shop or organization engaged in the 
business merely of dealing in differences of quotations on the fluctua- 
tions in the market, without a bona fide purchase or sale of the 
security or commodity involved. 

According to a recent ruling of the New York Exchange, in 
order to prevent manipulation, and to protect the small investor or 
speculator, brokers offering to buy or sell more than ioo shares of 
stock, are compelled to accept any offering of ioo shares, or multiples 
thereof, and where an offer of a large block of stock is accepted, 
the buyer or seller must take care of the smaller offerings. If 
guilty of fraud, or fraudulent acts, or of having made a misstate- 
ment upon any material point in his application, either for mem- 
bership or reinstatement, expulsion is the penalty. Here it should 
be said that the greatest care is taken by most exchanges in admit- 
ting new members, and that in order to be admitted, one must 
exhibit and prove his bank account and property holdings, and 
show that he has an adequate financial equipment. The ex- 
changes also carefully regulate the branch offices of all members, 
and provide that no member shall form a partnership with a sus- 
pended member of the exchange, or with any insolvent person, or 
with anyone, formerly a member of the exchange, against whom any 
member may hold a claim arising out of transactions. 

(2) The stock market also serves a most useful purpose in 
directing the flow of capital from channels where least needed into 
those where it can be most beneficially and profitably employed. 
Daily fluctuations in security prices may have but little significance, 
yet it is an axiom of the financial world that pronounced changes 
in the earning power of corporations are reflected, in the long run, 
by pronounced changes in the prices of their securities. It is 
equally true that if the stocks and bonds in a given line of industry 
are quoted, day after day, at a relatively low level, it is an indica- 
tion of the unprofitable character of that type of investment. It soon 
ceases to be attractive to investors. The quotation table proclaims 
its unworthy character to the owners of capital more effectively 
than any other argument. New enterprises along the same line 
will be discouraged, for what reason is there to undertake the 

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12 The Annals of the American Academy 

extension of an industry already unprofitable, when the same quota- 
tion table indicates other lines of industry whose high and rising 
prices of shares, as a result of large and increasing returns, will 
serve as a guide to capitalists in directing the flow of their uninvested 
funds? If the shares of copper mines or street railways are low, 
and show an unfavorable movement, it is a warning to the holders 
of capital that they should exercise the greatest caution in giving 
financial support to the promotion and extension of these enterprises. 
If, on the other hand, the stocks of equipment companies, steel 
companies, or railroads are selling high, and show a rising tendency, 
it is an index that further development and increased production 
are desirable, and that the flow of capital into these channels is 
warranted. 

By thus reducing the productivity or unprofitableness of many 
groups of industries to a common basis, and presenting the same in 
a table of quotations which is easily understood and accessible to all 
the world, our stock exchanges prevent the great misdirection of 
investments into unnecessary ventures, which would otherwise be 
the case. The stock exchange is the clearing house for all news of 
business significance. All information, political and industrial, is 
there studied and weighed by experts, who, by buying and selling, 
gratuitously give their conclusions to the world in the recorded 
quotations. These recorded transactions, representing the judg- 
ment of many trained minds, relieve the army of small investors 
of the trouble and expense, even provided this were possible, of 
familiarizing themselves with the many isolated facts underlying 
the operation, management and future prospects of corporations, 
possibly situated many thousands of miles away. "Through the 
publicity of knowledge and prices, the bringing of a multitude of 
fallible judgments upon this common ground, to an average, there 
is afforded to capital throughout the world an almost unfailing 
index of the course in which new production should be directed. 3 

It is more and more true that, just as the banks represent the 
organization of capital for the making of loans, so the great stock 
exchanges in America, England and Continental Europe represent 
the organization of capital for the purpose of investment. Their 
members and affiliated firms are most intimately associated with the 
largest banks, insurance companies, corporation directors, promoters 

"Charles A. Conant, "Wall Street and the Country." Page 92. 

(494) 



Scope and Functions of the Stock Market 13 

and private capitalists. So intimate has this association become 
that, directly, or indirectly, the promoter with a scheme to develop, 
the inventor with an invention to finance, or the government and 
corporation with a large issue of securities to float — all hie them- 
selves to large banking and brokerage houses which have stock 
exchange affiliations, and which are able to gauge the possibilities 
and success of the project, formulate the financial scheme by which 
the capital is to be raised, and lay it properly before the investing 
public. 

(3) Not only does the stock market afford a valuable protection 
to the holder of securities and direct the flow of capital, but it also 
serves a most useful purpose to all business men by "discounting the 
future" and thus affording a register of prospective values for 
property other than that listed on the exchanges. It is this dis- 
counting process which has given our stock exchange the appella- 
tion of "barometer of future business conditions." As pointed out 
in other papers of this volume, speculation deals with the future 
and not the present or the past. The stocks and bonds of our corpo- 
rations aggregate so large a proportion of the world's wealth, 
and represent such a variety of industries, that a marked rise or de- 
cline in the general level of prices is the surest indication, in fact an 
almost unfailing index, of coming prosperity or depression. And 
the all important fact is, that such changes of prices on the ex- 
changes always precede, that is to say, discount the event, and do 
not follow, or occur concurrently. Without an exception every 
business depression in this country had been discounted in our 
security markets from six months to two years before the depres- 
sion became a reality. 

The financial and business panic of 1907 serves as the latest 
illustration of the significant fact. The business conditions of 
1906 were the best that this country has ever enjoyed. Mills were 
running overtime, railroads were congested with traffic, and real 
estate operations were booming. The press was filled with the most 
roseate "write-ups" and predictions, yet despite the good news 
security prices showed little gain following the month of August. 
The earmarks of coming financial and business distress were at 
hand. The stock market was serving its purpose as the pivotal point 
where thousands of the brainiest men of the world were acting on 
judgments which had reference to the future and not the present. 

(495) 



14 The Annals of the American Academy 

Stocks were for sale by those who reasoned correctly and knew, 
and were purchased by those who did not know so much. They 
were even sold at a sacrifice, and as knowledge of the coming state 
of business affairs percolated from one strata of investors to another, 
the selling movement became more violent, and in March of 1907 
we had our first stock exchange panic. A rebound in prices occurred, 
but stocks were still for sale, and in July we had our second panic. 
In the meantime, however, business was excellent, and the press 
of nearly the whole country wondered what all the trouble was 
about, and why the Wall Street gamblers were thus losing their 
senses. The business depression, however, followed, and when it 
was a reality to even the most ignorant, the stock market had 
clearly discounted the event, and prices of securities refused to 
yield further. When business was at its worst, complaints the 
loudest, and the public press blue as indigo, stock market prices 
were again merrily ascending. The exchange was again the pivotal 
point where thousands of the best minds of the country were ex- 
pressing their judgment of the future, and were willing to convert 
their cash into securities, because of the anticipated increase in 
value. 

It is the failure to understand this fundamental law of price 
movements which has been the cause of enormous losses to the un- 
thinking and unknowing, whose judgments are based on what is 
seen and heard at the time. When the good news, whether it be 
big crops or large earnings, becomes common property, it has been 
discounted by the stock market ; and similarly, when the bad news 
is apparent to all, it has likewise been discounted. It is only 
natural, therefore, that the rank and file should regard the stock 
market as a most incomprehensible affair, "a bottomless pit," always 
going contrary to what is so perfectly evident at the time. 
But one should remember that the stock market is not 
distinct from other markets. The manufacturer, the merchant, 
the produce dealer and the real estate operator, all have 
an interest in its fluctuations, since they have an important bearing 
on 'their own transactions. Many of the stock market fluctuations, 
especially those of a few days or weeks, have little significance, 
since they may represent only some particular local cause or the 
whim of some speculator. But if the market steadily and rapidly de- 
clines, many business men, who know its "discounting" significance, 

(496) 



Scope and Functions of the Stock Market 15 

will assume a waiting attitude as regards their planned undertak- 
ings, or curtail their production ; and this waiting attitude, since all 
business is closely interrelated, will react upon all other forms of 
business effort. 

In this connection attention should be called to the operations 
of the so-called "bears" who speculate for the fall of stocks through 
the process of selling "short" that which they do not possess with 
the object of buying back later at a lower price, and fulfilling 
delivery on their contract. Many condemn and few sympathize 
with the "bear" in the market, because of the belief that it is wrong 
to sell that which one does not possess, that no economic good is per- 
formed by this practice, and that "short selling" artificially depresses 
security prices. In fact many have recently strongly urged the 
prohibition of such sales. 

A moment's reflection, however, will show that all these con- 
clusions have little basis in fact. These critics forget that "short" 
selling is a common practice in practically all kinds of business. 
The manufacturer is expected by the wholesaler to sell his finished 
wares at a definite price for some definite future delivery, and to 
insure the delivery of his goods at a stipulated price and time, the 
manufacturer expects the commission man or produce broker to sell 
the raw cotton or grain or metal for future delivery at a definite 
price, long before the crop has been harvested or the metal obtained. 
Contractors, likewise, in contracting for work at a definite price, 
are constantly selling labor and materials short. The general prac- 
tice of "hedging" on our exchanges, resorted to by nearly all busi- 
ness men handling our important staples, must necessarily involve 
a short sale. In business generally, "short selling" is regarded as a 
necessary means of insurance against business or speculative losses. 
If recognized here by all persons who have an understanding of 
business methods, it certainly cannot be maintained that it is wrong 
in the stock market to sell something which one does not now possess 
and intends to buy later. 

As regards the two other contentions, that short selling 
does not perform an economic good, and that it actually depresses 
the prices of securities, these critics are in the wrong. The short 
seller in the stock market is often the greatest benefactor in repress- 
ing rampant speculative enthusiasm on the one hand, and in checking 
the effects on security prices of excessive pessimism on the other. 

(497) 



1 6 The Annals of the American Academy 

"Short sellers" do not determine prices. By selling they simply 
express their judgment as to what prices will be in the future. If 
their judgment is wrong they will suffer the penalty of being 
obliged to go into the market and buy the securities at higher 
prices. Nine-tenths of the people are by nature "bulls," and the 
higher prices go, the more optimistic and elated they become. If 
it were not for a group of "short sellers," who resist an excessive 
inflation, it would be much easier than now to raise prices through 
the roof; and then when the inflation became apparent to all, the 
descent would be abrupt and likely unchecked until the basement 
was reached. The operations of the "bear," however, make exces- 
sive inflation extremely expensive, and similarly tend to prevent a 
violent smash, because the "bear," to realize his profits, must become 
a buyer. The writer has been told by several members of the New 
York Stock Exchange that they have seen days of panic when 
practically the only buyers, who were taking the vast volume of 
securities dumped on the exchange, were those who had sold "short," 
and who now turned buyers as the only way of closing their 
transactions. They were curious to know what would have hap- 
pened in those panic days, when everybody wished to sell and few 
cared to invest, if the buying power had depended solely upon the 
real investment demand of the outside public. 

In reply also to the prevalent opinion that "short selling" unduly 
depresses security values, it should be stated that "short sellers" are 
frequently the most powerful support which the market possesses. 
It is an ordinary affair to read in the press that the market is sus- 
tained or "put up" at the expense of the "shorts" who, having 
contracted to deliver at a certain price can frequently easily be 
driven to "cover." Short selling is thus a beneficial factor in 
steadying prices and obviating extreme fluctuations. Largely 
through its action, the discounting of serious depressions does not 
take the form of a sudden shock or convulsion, but, instead, is spread 
out over a period of time, giving the actual holder of securities 
ample time to observe the situation and limit his loss before ruin 
results. In fact, there could be no organized market for securities, 
worthy of the name, if there did not exist two sides, the "bull' and 
the "bear." The constant contest between their judgments is sure 
to give a much saner and truer level of prices than could otherwise 
exist. "No other means," reports the Hughes' Committee, "of 

(498) 



Scope and Functions of the Stock Market 17 

restraining unwarranted marking up and down of prices has been 
suggested to us." 

(4) It has long been recognized that the stock market exerts 
a powerful and wholesome influence upon the money market, and 
that the ownership by any country of a large mass of securities, 
which are listed on the leading exchanges, is a strong safeguard 
against financial panic. If confidence becomes shaken and a demand 
for money suddenly makes itself felt, causing creditors to insist 
on cash settlements, the banks are forced to call in loans and 
accumulate cash. But as pointed out before, stocks and bonds to 
an increasing extent serve as collateral for loans, and by virtue of 
the fact that such securities can be much more readily sold 
than other property, because of the continuous market for them, 
bankers first look toward the stock market for the application of 
corrective measures. The first blow, when money becomes dear, 
nearly always falls upon the stock market, that is to say, the first 
loans called are usually those protected with stock and bond collat- 
eral ; and it frequently happens that a period of forced liquidation 
in this market sufficiently corrects the money situation so as to 
leave other business practically unmolested. Crises are prevented, 
when they can be thus prevented, through the liquidation of securi- 
ties, and in case they cannot, the security market discounts them, 
and breaks their force into a succession of small declines, instead of 
a collapse. And even suppose the crisis is so far reaching that aid 
must be sought from abroad, if our bankers are the holders of 
many active stocks, listed on the foreign markets of England, 
France and Germany, their sale may be effected within an hour or 
two through a cable order, and the proceeds of the same at once 
forwarded to this country in the form of gold. 

The extent to which credit is made available between different 
markets, all of which can be brought into touch with one another 
through the telegraph or cable, has been demonstrated by innumer- 
able examples of the last few decades. The San Francisco con- 
flagration, for example, involved an enormous waste of capital, 
which had to be replaced by underwriters within a short time ; yet 
it is astonishing to observe how the domestic and foreign fire insur- 
ance companies were able to dispose of the securities, in which 
they had invested their funds, in order to supply the millions neces- 
sary to pay claims. Similarly, when France was called upon by 

(499) 



1 8 The Annals of the American Academy 

Germany to pay the enormous indemnity of one billion dollars at 
the close of the Franco-Prussian war, it was generally believed by 
all the world that France would be disastrously affected for decades 
to come. Yet the French were fortunately the owners of large masses 
of securities, many of them of international character and listed on the 
leading exchanges of the world. When, therefore, the French 
government called upon its citizens, in this time of distress, to buy 
government bonds, the quick response was most unexpected. The 
funds for the purchase of the bonds became readily available, because 
Frenchmen, being the owners of many securities, simply directed 
their brokers in London, Berlin, Paris, New York and other 
markets, to sell them. In brief, the titles which French- 
men held to the debts of foreigners were simply transferred to other 
markets, and the proceeds obtained from the sale became available 
for the floating of the new French loan. 

What may seem so apparent in the case of important crises, it 
should be remembered, occurs almost daily in a less sensational way. 
A corporation desires to borrow fifty million dollars, and the funds 
are readily obtained in the most available market by the sale of the 
securities, or by depositing them as security and borrowing thereon. 
From week to week the pressure on the money market is largely 
transferred to the borrower on call, who has deposited stocks and 
bonds as collateral ; and frequent contraction or expansion in money 
rates is thus avoided. If there was not a large mass of salable securi- 
ties, and large markets where they could be sold easily, we should 
have the spectacle of banks charging eight or nine per cent for time 
loans one month, and then two, three or four per cent another month. 
Since stock markets, however, make it possible for credit to be 
placed almost instantly at the disposal of one market or another 
where most needed, time loan rates fluctuate but little. Commercial 
borrowers continue to pay a rate of five or six per cent with the 
serene confidence that they need fear but little variation. 

Another illustration of the facilities afforded by securities as a 
means of making payments, presents itself in the operations of 
foreign exchange, a field in which security markets are more and 
more playing an important part. If "A" in New York buys goods 
of "B" in London, the simplest way, apparently, for "A" to dis- 
charge his indebtedness, would be to ship gold to London. But the 
cost of transportation, handling and insurance, makes this the most 

(500) 



Scope and Functions of the Stock Market 19 

expensive means of effecting settlement. A cheaper plan would 
be to find a London merchant, "C," who owes money in New 
York, and request him to make payment in London to "A's" credi- 
tor; while "A" in New York makes payment to "C's" creditor in that 
city. This is the customary way of cancelling international debts, 
although the various parties interested do not themselves effect 
the cancellation, but request foreign exchange dealers to do this 
for them. 

These foreign exchange dealers should always know which is 
the cheapest means of settling international debts, and right here it 
should be remembered that securities constitute, at times, the 
easiest and most profitable medium of payment. This brings up the 
subject of "arbitrage" in security markets, which will only be men- 
tioned here to show the relation which the security market bears to 
the money market. It happens daily that the quotations for given 
stocks sold on the New York and London exchanges are not exactly 
the same, but for various reasons differ slightly. Furthermore, 
because of organized stock markets in which a market for active 
stocks is always assured, and the use of the cable, it is possible for 
an arbitrageur to buy a security in the low market and sell the same 
security in the other market, where it is selling higher, at almost 
the same time, and thus realize the difference. Hence the moment 
a security in London is higher than in New York, or vice versa, 
by a sufficient amount, a foreign exchange dealer in New York with 
stock exchange affiliations as an arbitrageur, who wishes to remit 
money to London, may sell that security in London, and at the same 
time buy that security in New York. Then, instead of sending the 
money to London, he may use the debt of the London purchaser 
of the security to settle the account for which he desired to remit 
the money ; while, at the same time, he may pay for the securities 
he bought in New York with the money paid to him by the debtor in 
New York, who desired him to settle his account in London. Hence, 
by selling securites in London, and buying them in New York, or 
vice versa, international debts may be balanced without the transfer 
of any bullion. Such arbitraging. it is clear, must also tend to 
bring the prices of securities to a common level in all the leading 
stock markets of the world, so that an important stock will have a 
uniform price practically everywhere. The success of the method 
depends upon the arbitrageur's prompt knowledge of quotations in 

(5oi) 



20 The Annals of the American Academy 

the two markets. In practice such quotations are exchanged almost 
instantaneously. We are informed that the entire process of Collect- 
ing quotations on the New York Exchange, cabling them across the 
ocean, and transacting a purchase or a sale on the London Exchange 
takes only a few minutes, and that some days no fewer than 5,000 
messages are cabled by the large arbitrage houses for this purpose. 
In the above arbitrage transaction, it is not even necessary to 
send the securities from one market to the other in order to close the 
account. Owing to the expense and inconvenience of shipping securi- 
ties, arbitraguers, wherever possible, try to conduct their busi- 
ness in such a way as to make the shipping of securities between 
Europe and America unnecessary. As a matter of fact, very few 
such shipments are made. The arbitrageur, for example, may buy 
a certain quantity of stock in London to-day, selling the same stock 
in New York. The next trade, however, may represent a purchase 
of the same stock in New York, as against a sale in London. 
Assuming that 1,000 shares were involved in each transaction, the 
arbitrageur, since he has bought and sold 1,000 shares in each 
market, can simply balance the transactions and thus settle his 
entire account. But it is not even necessary for him to even up 
his daily accounts in order to avoid the shipment of securities. 
It may happen that he is obliged for a week, a month, or even 
longer, to continue purchasing a certain security in one market 
and selling it in another. Here he may do what the "short seller" 
does. In the market where he has sold the stock he can borrow the 
same in order to fulfil delivery, while in the market where he has 
continued to buy stock and it is accumulating on his hands, he may 
lend the stock for its market value. Thus he may borrow or lend 
in either market the securities involved in a series of unsettled 
transactions, and carry these transactions over an indefinite period 
to suit his convenience. He may continue this practice until a favor- 
able opportunity presents itself for him to sell his accumulations of 
stock in one market and buy the same stocks in the other market. 
Most arbitrageurs will patiently await these opportunities from 
time' to time, and the fewer the actual shipments made, the greater 
will be the profit. 



(502) 



Scope and Functions of the Stock Market 21 



The Curb Market 

Aside from the transactions in stocks and bonds on the regularly 
organized stock exchanges of the world, a very considerable amount 
of buying and selling is done on the so-called "curb market," which 
may be defined as an open air market where all persons may buy 
and sell securities which are not listed on any organized exchange. 
Of such markets in America the New York "curb" is by far the 
most important, having had an existence of more than thirty years, 
although its real importance dates since 1897, when trading in 
unlisted securities began to assume tremendous proportions. In 
1908 the recorded sales of bonds on this market aggregated sixty- 
six million dollars, and the industrial and mining shares sold there 
amounted to 46,495,000 in number. 

According to the report of Governor Hughes' Committee on 
Speculation in Securities and Commodities, the New York curb 
depends, for most of its business, upon the members of the New 
York Stock Exchange, about eighty-five per cent of the orders 
emanating from stock exchange houses. In fact the New York 
Stock Exchange is largely responsible for the continued existence 
of the "curb," because of a provision in its constitution which pro- 
hibits its members either from becoming brokers of, or dealing on, 
any other organized exchange in New York. At present the "curb" 
market occupies a section of Broad Street, roped off for its special 
use, where from 150 to 200 brokers, and as many messenger boys 
and clerks, congregate daily during exchange hours, to transact 
orders in those securities which cannot be bought or sold on the 
regularly organized exchanges of the city. 

The "curb" market is essentially an unorganized one, and 
the expenses of maintenance are met by voluntary subscription. 
Such regulations as exist are agreed to by common consent, and 
are promulgated by an agency, likewise established by common 
consent. This agency also issues daily the official quotations which 
appear in the public press. According to the report of the Hughes' 
Committee on Speculation, this agency consists "solely of an indi- 
vidual who, through his long association with the curb, is tacitly 
accepted as arbiter." There is nothing on the "curb" which can 
be compared to the method of listing stocks on a regular exchange, 
but corporations desiring to have their securities bought or sold 

(503) 



22 The Annals of the American Academy 

in that market must furnish the agency with certain limited informa- 
tion, which, however, is generally regarded as woefully incomplete 
and superficial. By way of comparison between the two methods 
of admitting securities to the two classes of markets, the committee 
reports that the listing committee of a regular exchange "while 
not guaranteeing the soundness of the securities, gives a prima 
facie character to those on the list, since the stock listing committee 
takes some pains to learn the truth. The decisions of the agent of 
the curb are based on insufficient data, and since much of the work 
relates to mining schemes in distant states and territories and for- 
eign countries, the mere fact that a security is quoted on the curb 
should create no presumption in its favor ; quotations frequently 
represent 'wash sales,' thus facilitating swindling enterprises." 

Because of the unorganized character of the market, and the 
absence of the many disciplinary measures, already noted, which are 
imposed upon members of a regular exchange, it is only natural that 
many and bitter complaints should have been directed against the 
curb market. It is charged that many frauds are committed upon 
innocent and unsuspecting persons who, unacquainted with the 
practice of "washing" sales, are induced to buy and sell securities 
simply because they happen to be quoted on the "curb." Despite 
such abuses, however, resulting chiefly from the lax method of 
admitting securities and brokers to the market, it should be remem- 
bered that the curb list includes a larger number of very meritorious 
stocks, selling at very high quotations, which are dealt in on the 
curb simply because the corporations which they represent either 
do not desire to have them listed on regular exchanges or refuse 
to comply with the rules on listing of such exchanges, especially as 
regards the issuance of annual financial reports. 

In view of the large amount of business on the "curb" which 
comes through the offices of stock exchange members, the Hughes' 
committee recommends that the stock exchange itself should formu- 
late and enforce certain rules relative to the conduct of "curb" 
brokers, and the admission of securities to quotations. The com- 
mittee recognizes the utility of a "curb" market, and in respect to 
stock exchange regulation of the same suggests that "if the curb 
brokers were notified that failure to comply with such requirements 
would be followed by an application of the rule of non-intercourse, 
there is little doubt that the orders of the exchange would be obeyed. 

(504) 



Scope and Functions of the Stock Market 23 

The existing connection of the exchange gives it ample power to 
accomplish this, and we do not suggest anything implying a more 
intimate connection. . . . To require an elaborate organization, 
similar to that existing in the exchanges, would result in the exist- 
ence of another 'curb,' free from such restraints." 



(SOS) 



THE PURCHASE OR SALE OF SECURITIES THROUGH 
A STOCKBROKER 



By Eliot Norton, 
Of the New York Bar. 



When a person desires to buy or sell securities he can do so 
exactly as in the case of any personal property. All he has to do 
is to find a seller or a purchaser, as the case may be, agree on the 
price, and complete the transaction by delivering the securities and 
receiving the purchase price in case of a sale, or receiving' the secu- 
rities and paying the purchase price in case of a purchase. In the 
case of securities care, however, is needed that they should be 
described correctly and that any representations as to their value 
should be confined to true and provable facts. A purchase or sale is 
so simple a transaction that between honest and reasonably intelligent 
people there should be no room for differences to arise. The law, 
too, respecting the sale of personal property is well established, 
and if differences do arise there is not generally any great diffi- 
culty in determining the rights of the parties. 

In the case of certain securities there is so great a number of 
transactions that it has been found convenient for purchasers and 
sellers not to deal directly with one another but through the inter- 
vention of stockbrokers. These make it their business to act as 
agents for intending purchasers and sellers of certain securities, 
and wherever there are many stockbrokers they have found it con- 
venient to establish stock exchanges. These are in their nature 
private business associations founded to facilitate and regulate deal- 
ings in securities, to which only stockbrokers belong. The mem- 
bers elect officers and committees with power to regulate matters 
connected with the exchange, the conduct of its members and the 
transaction of business. The rules they make are always supple- 
mented by various customs, established among the members, to 
which is given the same recognition as if they formed part of the 
rules. 

Every stock exchange provides a room which is called "the 

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Purchase or Sale of Securities 25 

exchange," or the "floor of the exchange." The use of this 
"exchange" or "floor" is regulated by the constitution, rules and 
customs of each stock exchange. In general, the rules of all 
American stock exchanges provide : 

1. That only the members of a stock exchange shall be per- 
mitted on its floor. 

2. That during certain hours of every business day the mem- 
bers may deal with one another on the floor. 

3. That transactions between members on the floor shall only 
be in or with certain specified securities. 

4. That only certain kinds of transactions shall be permitted 
on the floor. 

Chief among these permitted transactions is the purchase and 
sale of securities. The manner in which this is done is regulated 
by the rules and customs of each stock exchange. In general this 
manner is the same on all American stock exchanges, and is as 
follows : 

During the hours in which trading is permitted to the members 
of a stock exchange* they congregate on the floor, and are per- 
mitted then and there to offer and to accept offers to buy or sell 
securities for a money price. These offers and acceptances are 
made by word of mouth or merely by customary signs. In making 
or accepting an offer a stockbroker almost invariably acts as if he 
were acting for himself only, even though he may actually be acting 
as an agent, and thus the contract which results when an offer is 
accepted is, on its face, a contract only between the two stock- 
brokers. 

Every offer to buy or sell is required to be for some fixed 
amount of some particular kind of security and for a money price, 
payable on the delivery of the securities according to the rules of 
the stock exchange by the selling to the buying stockbroker. A 
variety of times of delivery, or "deliveries," as they are called, 
is permitted by the rules of every stock exchange, for any one of 
which an offer may be made. 

Since these offers are essentially similar except in point of the 
delivery, they are classified by that as follows : 

1. Offers to buy or sell "for cash." 

If an offer to buy or sell "for cash" is accepted, the rules fix 
a particular time in the same business day in which the contract is 

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26 The Annals of the American Academy 

made, before which delivery of the securities must be made by the 
seller. 

2. Offers to buy or sell in the "regular way" or "regular." 
If an offer to buy or sell "regular" is accepted, the rules fix 

a particular time in some business day following the day on which 
the contract is made, before which delivery of the securities must 
be made by the seller. 

3. Offers to buy or to sell where the time of delivery is post- 
poned until a fixed time not further off than three days. 

Offers of this sort are offers to buy or to sell "at three (or 
two) days." If an offer of this sort is accepted, delivery of the 
securities must be made by the seller on the third (or second) 
day after the contract is made, and before a certain time on such 
day. 

4. Offers to buy or to sell where the time of delivery may be 
postponed until a fixed time not further off than three days. 

Offers of this sort are offers to buy or to sell "buyer three" 
(days) or "seller three" (days). An offer to buy or to sell "seller 
three," if accepted, gives the seller the option of making delivery 
of the securities at any time before a fixed time on the third day 
after the contract is made ; and an offer to buy or to sell "buyer 
three," if accepted, gives an option to the buyer of "calling" (de- 
manding delivery of) the securities at any time before a fixed time 
on the third day after the contract is made. 

5. Offers to buy or to sell where the time of delivery may be 
postponed for longer than three days, but not longer than sixty 
days. 

The commonest form of such offers are offers to buy or to sell 
securities "buyer thirty" (days) or "seller thirty" (days), or "buyer 
sixty" (days) or "seller sixty" (days). Such offers, if accepted, 
give options similar in all respects except that of length of time 
to those in the case of "buyer three" or "seller three." After offers 
of this kind are verbally made and accepted they are reduced to 
writing and such written contracts are known as "stock exchange 
contracts." 

6. Offers to buy or to sell where the time of delivery is fixed 
by the happening of some future event. 

Common forms of such offers are offers to buy or to sell secu- 
rities "seller, (upon the) opening of books," or "to arrive," or "when 

(508) 



Purchase or Sate of Securities 2"j 

issued." If an offer of this kind is accepted delivery of the 
securities must be made by the seller as soon as the event stated in 
the offer happens. 

The contracts which result from the acceptance of offers to buy 
or to sell permitted to be made on the floor of stock exchanges 
must obviously be alike in the matters in which such offers are, and 
can only differ in the matters in which such offers do. Conse- 
quently they are all alike in being contracts to buy or to sell a 
fixed amount of some particular kind of security for a money 
price to be paid on the delivery of the securities, and differ in 
essentials only with respect to the time when delivery of the secu- 
rities must or may be made by the seller or may be called by the 
buyer, which in all cases is postponed until some time after the 
contract is made. 

The legal nature of these contracts is not difficult to determine. 
In all of them it is clear that the intention of the parties is to post- 
pone the passing of the title of the securities contracted to be bought 
or sold until they are delivered and the purchase price paid. Hence, 
as no actual sale of personal property can occur without a complete 
transfer of title from the seller to the buyer, these contracts do 
not constitute actual purchases and sales, but are contracts to make 
purchases and sales at the time when they are to be performed by 
the delivery of the securities and the payment of the purchase 
price. All of them are what are called "executory contracts of 
sale," in which the actual purchase and sale does not take place 
until the contract is performed. It is, however, usual for stock- 
brokers to call contracts to buy or to sell securities "for cash" or 
"regular" "purchases" or "sales," and only to call contracts where 
the delivery may be postponed for longer than three days, "stock 
exchange contracts" or "contracts for the receipt or delivery of 
securities." Contracts to buy or to sell securities where the time 
of delivery is or may be postponed until a fixed time not further 
off than three days stand by themselves. They are never called 
"contracts," but are usually included under the head of "pur- 
chases" or "sales." 

Since stockbrokers in contracting act as principals, each is 
legally bound to the other to perform his part under the terms of 
any contract. If either fails to do so, every stock exchange gives 
to the other an effective and immediate method of liquidating his 

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28 The Annals of the American Academy 

loss, and will enforce this liquidated claim so far as it is able by 
suspension of the defaulting stockbroker and by the sale of his 
"seat" or share in the exchange. To facilitate stockbrokers in 
performing the contracts that they make, every stock exchange has 
established rules by which the performance of all contracts made 
on its floor can be conveniently and expeditiously carried out. In 
consequence of this, every offer to buy or to sell securities made 
on the floor of a stock exchange contains an implied term to the 
effect that the contract which will result from its being accepted 
shall be performed according to the rules of such stock exchange. 
It is to be noted that by these rules the actual performance of any 
contract takes place away from the stock exchange on the floor of 
which it is made. In spite of this, it is customary to speak of 
"buying" and "selling" securities on the floor or on the exchange, 
and also of purchases and sales being made on the floor or on the 
exchange, where it would be more proper to speak of contracting 
to buy or to sell on the floor or on the exchange and of contracts for 
the purchase and sale of securities being made on the floor or on 
the exchange. 

The manner in which American stock exchanges permit their 
members to deal on "the floor" for the purchase and sale of secu- 
rities has now been described. 

Since a stockbroker can only deal on the floor of his exchange 
in the manner described and can only purchase or sell securities 
of certain kinds for certain deliveries, any person desiring to employ 
him to do so must be willing that in doing so the stockbroker should 
conform to the way stockbrokers have to act. And as knowledge of 
the rules and customs which regulate this way are chargeable, as a 
general thing, to employers of stockbrokers, it is incumbent on them 
to understand them. 

Now, of all the transactions engaged in between stockbrokers 
and the persons who employ them, the simplest is a purchase for a 
customer who has money which he wishes to forthwith invest in 
securities or a sale for a customer who has securities whose value 
in cash he wishes to get immediately ; and the way this has to 
be performed must be understood before any other transaction can 
be fully comprehended. A transaction of this kind is called an 
outright or simple purchase or sale, or, more technically, a pur- 
chase or sale for "the investment account." The way this trans- 

(510) 



Purchase or Sale of Securities 29 

action is performed is as follows : The first step is for the cus- 
tomer to engage and authorize the stockbroker to do what he wishes 
done. Then the stockbroker contracts on the floor of the stock ex- 
change to buy or to sell the securities the customer wishes bought 
or sold, either "for cash" or "in the regular way" as the customer 
may prefer. The stockbroker contracts, as has been stated, in his 
own name, and becomes personally bound to perform the contract 
or contracts he makes. If he performs with the securities the cus- 
tomer wishes to sell or with the money he wishes to invest, it is 
obvious the customer's desires will be fulfilled. This is, of course, 
what the customer intends he should do. Hence, as soon as the 
stockbroker has contracted, the customer supplies him with the 
means to perform by either giving him the money to pay for the 
securities he has contracted to buy, or the securities to deliver 
which he has contracted to sell. Then the stockbroker perforins his 
part of the contract or contracts he has made, and should simul- 
taneously receive from the stockbroker or stockbrokers with whom 
he has contracted the securities he agreed to buy, or the purchase 
price for the securities he agreed to sell. He then accounts to the 
customer, and gives him the money or the securities he has received. 
This completes the transaction, so far as the purchase or sale of 
the securities is concerned. The stockbroker, however, must be 
paid for his services. Even if he were willing to act without 
compensation he cannot do so, for the rules of all stock exchanges 
provide that a stockbroker must charge and be paid at least a cer- 
tain fixed sum for every transaction he makes on behalf of any 
other person, and impose a severe penalty for any violation of this 
provision. This sum is called the stockbroker's commission, and 
is a fixed percentage of the par value of the securities contracted 
to be bought or sold. It is usually provided that the stockbroker 
must charge and be paid at least this commission without any man- 
ner of rebate or return, discount or allowance "on all purchases 
and sales" and contracts which he makes on the floor of the stock 
exchange. The words "purchases and sales" are here used with 
the significance of contracts to buy or to sell, and consequently the 
customer must in all cases be prepared to pay this commission when 
the stockbroker has contracted to buy or to sell. In practice, how- 
ever, the stockbroker does not usually require him to pay it until 
he has fully performed the contract or contracts he has made, and 

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30 The Annals of the American Academy 

for his services in so performing the stockbroker makes no addi- 
tional charge. 

I now propose to consider the engagement of a stockbroker by 
a customer who wishes a simple purchase or sale of securities to 
be effected on the stock exchange to which the stockbroker belongs. 
Since this can only be done in the way and on the terms described, 
the engagement must be adapted to meet the requirements of this 
way and these terms. And from this point of view the following 
matters are requisite to every such engagement : 

1. Since the stockbroker acts as the agent of the customer, 
he must be vested with authority to buy or to sell the securities the 
customer wants in the manner described. This way naturally falls 
into two parts — (a) the contracting to buy or to sell, and (b) the 
performance of the contract or contracts when made, both of which 
are done by the stockbroker, and both of which must, consequently, 
be embraced by his authority. 

2. Since the stockbroker performs with the money or secu- 
rities of his customer, provision must be made for his being sup- 
plied with the money or the securities. This usually takes either 
the form of a deposit at the time the stockbroker is engaged, 
or, as the making of contracts is always uncertain, of an offer to 
supply the money or the securities on the making of the contract 
or contracts. 

3. Since the stockbroker must be paid a commission, on terms 
and in amount as are fixed by the rules of his stock exchange, 
provision must be made for the payment by the Customer of this 
commission according to the requirements of these rules. This 
usually takes the form of a simple promise by the customer to do so. 

Subject to these requisites, the stockbroker may be engaged 
in any way he and the customer may agree upon, and all kinds of 
promises, provisos and conditions may be made part of his en- 
gagement. There has been established, however, a convenient, 
brief and customary way of engaging a stockbroker to carry out a 
simple purchase and sale of securities. This way is almost always 
used, except where a customer is ignorant of it, or peculiar cir- 
cumstances exist which force the adoption of some other form of 
engagement. I now propose to describe this mode of engagement, 
its legal consequences, the rights of the parties, and how, in point 
of fact, the transaction is carried out under its terms. 

(512) 



Purchase or Sale of Securities 31 

The Order. — The first step is for the customer to give the 
stockbroker, either verbally or in writing, an "order" to buy or to 
sell securities for "regular delivery," for which there is a regular 
form. This is: "Buy or sell for my account and risk (here fol- 
low the amount and kind of securities to be bought or sold) at 
(here follows the price at which the customer wishes the securities 
to be bought or sold)." 

Technical words are used, and technical meanings are attributed, 
and customs have been established in the business of stockbrokers. 
Thus a typical order in the regular form would be worded : "Buy for 
my account and risk 100 D. L. & \V. at 271." So far as these cus- 
toms, technical words and technical meanings apply to the wording 
of orders in the regular form, they must be described before the full 
meaning of an order like this typical one can be apprehended. 

1. The word "buy" or "sell," as used in an order in the 
regular form given to a stockbroker who is a member of a stock 
exchange, is taken to mean "contract to buy" or "contract to sell 
on the stock exchange of which you are a member according to its 
rules and customs." 

2. The words "for me" or "for my account," as used in an 
order in the regular form, are taken to mean that the contract the 
stockbroker is directed to make is to be made for and on behalf of 
the customer. 

3. The words "at my risk," as used in an order in the 
regular form, have the customary significance that the cus- 
tomer assumes the risk of any failure to perform on the part of 
the stockbroker or stockbrokers with whom his stockbroker con- 
tracts, and that he does not require the latter to guarantee in any 
way that the contract or contracts which he makes will be performed 
by the stockbroker or stockbrokers with whom he contracts. If 
these words are omitted in an order in the regular form, as they 
may be, they are implied by force of custom. 

4. When an order in the regular form does not state a par- 
ticular delivery for which the securities are (to be contracted) to 
be bought or sold, it is taken to mean that they shall be contracted 
to be bought or sold for "regular" delivery. 

5. A large number of abbreviations of the full names of cor- 
porations and for various kinds of securities are customarily used 
among stockbrokers. When any of these abbreviations are used in 

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32 The Annals of the American Academy 

an order in the regular form, they are taken for what they stand 
for to stockbrokers. 

6. Where an order in the regular form simply states a number 
before the name or the customary abbreviation for the name of a 
corporation, as "Sell for my account and risk ioo Union Pacific," 
the number in question is taken to mean the number of shares of the 
capital stock of the corporation named which are to be (contracted 
to be) bought or sold. If the capital stock of the corporation is 
divided into preferred and common stock the order should of course 
specify which kind is intended, but if this should be neglected the 
order will be taken by custom to refer to the common stock. 

7. Bonds and shares of stock are contracted to be bought or 
sold on the floor of a stock exchange for so much for each hundred 
dollars' worth of the par value. Hence, when an order in the 
regular form simply states a number at which a number of bonds 
or shares of stock is to be bought or sold, as "Sell for my account 
and risk 100 Erie at 13," the number in question is taken to mean 
the number of dollars for which each hundred dollars' worth of 
the par value of the bonds or stock shall be (contracted to be) 
bought or sold, subject to the following custom: 

That where a particular price is stated in an order in the regular 
form, the words "or better" are read in after it; which mean that 
the price stated is the price at which the securities shall be (con- 
tracted to be) bought or sold, unless a better price — i. e., a lower, 
in case of a purchase; a higher, in case of a sale — is obtainable, in 
which case they shall be (contracted to be) bought or sold at such 
better price. 

8. Where no price is stated in figures in an order in the regu- 
lar form, but the securities are ordered to be (contracted to be) 
bought or sold "at the market price" or "at the market," it is taken 
to mean that the securities are (to be contracted) to be bought or 
sold for the best price — i. e., the lowest, in case of a purchase; the 
highest in case of a sale — obtainable. 

9. Where an order in the regular form does not state any- 
thing at all about the price for which securities are (to be con- 
tracted) to be bought or sold, the order is taken to mean that the 
securities shall be (contracted to be) bought or sold at the "market 
price," the meaning of which has just been explained. 

Interpreting according to these customs, technical words and 

(514) 



Purchase or Sale of Securities 33 

meanings, the order taken as typical, "Buy for my account and risk 
100 D. L. & W. at 271," it becomes: "I order you to contract to 
buy for regular delivery for me and at my risk on the stock exchange 
of which you are a member, according to its rules and customs, 
100 shares of the common stock of the Delaware, Lackawanna & 
Western Railroad Company, at 271 dollars, or better, for every hun- 
dred dollars' worth of the par value of the shares." 

The Legal Nature of the Order. — Stockbrokers form a par- 
ticular class of semi-public agents, and as such hold themselves out 
as ready to act as agents for their employers, who are called "cus- 
tomers" or ''clients." Obviously an order is a proposition to vest 
the stockbroker with an agency. As between the principal and the 
agent the scope of every agency depends on the principals intent. 
Hence, it is the duty of the customer to make any order so clear 
that there is no possibility of its being misunderstood by the stock- 
broker. This is peculiarly incumbent on him in view of the cus- 
toms, technical words and meanings which have been described, 
and which in law would probably be held to bind a customer, even 
if he should claim he did not know of them. Assuming that a cus- 
tomer has given an order in the regular form, and interpreting it ac- 
cording to the customs, technical words and technical meanings which 
have been stated, then it will bear the full significance stated above 
and will be found to contain: 

1. A proposition to make the stockbroker the customer's 
agent with authority, 

(a) to contract to buy or to sell, according to the rules and cus- 
toms of the stock exchange of which the stockbroker is a member, 
the securities stated in the order on the terms there stated, and, 
since this authority is "to contract," it permits the stockbroker mak- 
ing as many separate contracts with one or more other stockbrokers 
as may be necessary to purchase or sell the securities stated in the 
order ; 

(b) to perform in the way established by the rules of the 
stock exchange of which the stockbroker is a member the contract 
or contracts made under the authority to contract. 

The former of these authorities is clearly expressed in the order. 
The latter must be implied, but the ground for its implication is 
solid, and is that the customer must be held to propose to authorize 
the necessary consequences of what he expressly proposes to author- 

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34 The Annals of the American Academy 

ize, and personal performance by the stockbroker of the contract 
or contracts he makes is a necessary consequence of making it or 
them, as it is expressly proposed he should do, according to the 
rules and customs of his stock exchange. 

2. An implied offer by the customer that if the stockbroker 
becomes the customer's agent, as proposed by the order, and in con- 
sideration of doing so the customer will reimburse and indemnify 
him for all outlays, expenses, liabilities and losses necessarily or 
reasonably incurred in so acting as agent. This offer obviously 
involves an offer to supply the stockbroker with the securities or 
money needed to perform in the event of his contracting to buy or 
to sell. 

3. An implied offer by the customer to pay the stockbroker 
a commission in accordance with the requirements of the rules of his 
stock exchange. 

These requirements are that the stockbroker shall be paid a 
fixed commission for every contract he makes on the floor of the 
stock exchange to which he belongs. Hence, the customer's implied 
offer is to pay the stockbroker the usual commission in consideration 
of and on the making of any contract or contracts to buy or to sell 
he may make to carry out the order. Hence, this offer remains as 
made and unaffected by anything the stockbroker may do until he 
has actually contracted to buy or to sell the securities. Then, by 
the performance of what the customer offered to pay for, the cus- 
tomer's offer to pay a commission ripens into a promise to do so. 
In this way a contract springs into existence binding the customer 
to pay the fixed commission. This contract is of the unilateral or 
executed variety. 

This is the whole legal significance of an order in the regular 
form: 

The Taking of an Order. — Where a proposition to confer an 
authority is made all that is required in law to create the relation 
of principal and agent between the proposer and the person to 
whom the proposition is made is that the latter should consent to 
the proposition. Hence, after an order is given to a stockbroker 
the -next step is for him to decide whether he will refuse it or con- 
sent to it. If he does not refuse it, as he may in any case, he will 
express in some way, by words or acts, his consent or willingness to 
undertake what he is ordered. Such an expression of willingness is 

(516) 



Purchase or Sale of Securities 35 

called "taking" the order. This expression of willingness, this con- 
sent to the proposition made him, need not necessarily be communi- 
cated by the stockbroker to the customer ; it may be inferred from 
his conduct. So, too, a refusal to consent to a proposition to confer 
an agency need not be communicated, but can be left to be in- 
ferred. But since it is very easy, except in clear cases, for error 
to arise in inferring what a stockbroker means in the case of his 
remaining silent when an order is given him, the only safe course 
for the customer is to obtain a clearly expressed consent or refusal. 

This is all the stockbroker usually expresses at the time of 
taking an order, except that, where he has not entire confidence in 
his customer's responsibility, he will ask him to deposit with him 
the securities he wants to sell or the money he wants to invest 

This giving and taking of an order of the kind described, with 
or without a deposit of money or securities constitute the whole 
of the customary form of engagement of a stockbroker to carry 
out a simple purchase or sale of securities. 

The Legal Effect of "Taking" the Order. — This is to constitute 
the stockbroker the customer's agent, and to vest in him the authori- 
ties proposed by the order, and also to turn the customer's offer 
to indemnify the stockbroker into a promise to do so; but it has 
no effect upon the customer's offer to pay a commission. That re- 
mains an offer until the securities are contracted to be bought or 
sold. 

Sometimes, though rarely, the stockbroker, in addition to ex- 
pressing his willingness to undertake an order, expressly promises, 
in consideration of the customer's giving him the order, to act as 
the customer's agent. It is unusual to find such a promise ex- 
pressed in words, but it is usual for courts of law to imply it in 
all cases where an order is "taken." The only effect of such a 
promise is to add to the stockbroker's status as agent, created by 
the mere "taking" of the order, a contractual obligation on his part 
to act as agent. This makes no difference in the rights and duties 
of the customer and stockbroker as principal and agent, for, whether 
they spring from status alone or from status and a contract to act 
as agent, they are the same, except that in the latter case there is 
a liability sounding in contract for any default in his duties as 
agent in addition to the ever-present liability in tort. It is to be 
carefully noticed that in this regular form of engagement a promise 

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36 The Annals of the American Academy 

on the part of the stockbroker to carry out the order or to do any- 
thing except to act as the customer's agent cannot be found. 

The Legal Effect of the Whole Engagement. — It follows from 
what has been said that the whole result of the usual engagement 
of a stockbroker, consisting in the giving of an order and the 
"taking" of it, accompanied by or without an express or implied 
promise to act as agent, is to create an agency coupled with an 
offer to pay a commission and a promise to indemnify the stock- 
broker. 

The deposit of the securities to be sold or the money to be in- 
vested at the time the order is given does not change this result. 
It merely adds a collateral arrangement of security. It provides in 
advance the securities or money which the stockbroker will need in 
case he contracts. This deposit must, of course, be at once returned 
by the stockbroker to the customer in case he fails to contract. 

Where the money or securities are not deposited at the time of 
giving the order, the stockbroker relies upon the customer's promise 
to supply the securities or money in case the stockbroker contracts, 
which, as has been stated, is involved in the customer's promise to 
indemnify the stockbroker against loss and liability. 

It can now be seen that this customary mode of engagement 
meets all the three requirements which on an earlier page were 
laid down as necessary to every engagement of a stockbroker to 
buy or sell securities according to the rules of American stock 
exchanges. 

Assuming now that a stockbroker has been engaged by his 
taking an order like the one given above as typical, I will state 
according to what legal principles and how as a matter of fact he 
must thereafter act to carry out his engagement correctly. 

Of the Carrying Out of the Order. — The relation between the 
customer and the stockbroker created by the usual engagement 
being that of principal and agent, the principles of the law of agency 
govern its carrying out. If in any case the stockbroker carries out 
the order according to the intent of the customer, the customer 
is bound. This is the meaning of the stockbroker having authority. 
If/ on the other hand, the stockbroker fails to carry out the order 
according to the customer's intention, the customer is not bound 
In such a case he is not required to take any steps to assert this. 
On the other hand, if he chooses to, he can ratify what has been 

(518) 



Purchase or Sale of Securities 37 

done contrary to his intention. Ratification rests on the consent of 
the customer to be bound. Therefore he should, as a matter of 
precaution, repudiate anything done contrary to his intention, in 
order that his silence may not be taken and used as evidence of 
consent. 

Another principle of the law of agency is that the law requires 
of one who undertakes an agency that he should exercise due care 
in and about what he is entrusted to do, and to act in good faith 
toward his principal. If he fails in either direction he will be 
liable in damages. 

The degree of care which a stockbroker must show is to be 
measured by the standard of care which a faithful and intelligent 
stockbroker thoroughly versed in his business would show. It is 
not to be measured by the degree of care which one not a stock- 
broker would show, or by that degree of care which is customary, 
or which stockbrokers usually give, unless such degree of care is that 
which an intelligent, faithful and competent stockbroker would 
show. 

The duty of showing good faith is very stringently enforced. 
In doing so judges incline to lay down general rules of conduct 
rather than to decide each case on its merits. Thus the rule is 
established and enforced without exception that a stockbroker can- 
not sell to or buy from himself, or his clerk, or a firm of which he is 
a member, and this without proof of fraud, and even in case where 
the price obtained for or given by the customer is as good or better 
than would otherwise have been obtained or paid. There is no estab- 
lished custom which would justify stockbrokers in violating this 
rule of law. These are the main principles of the law of agency 
which govern the carrying out of an order. 

How, now, as matter of fact, does a stockbroker carry out 
an order interpreted according to the customs, technical meanings 
and technical words already stated? He is authorized first to con- 
tract. This authority is qualified by two customs. Before stating 
them it is necessary to explain that the "execution" of an order 
consists only of the contracting to buy or to sell the securities 
ordered upon the terms of the order, and an order is said to be 
"executed" when this is done. In other words, the "execution" 
of an order is the carrying out of the authority to contract. The 
two customs are : 

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38 The Annals of the American Academy 

1. An order in the regular form to buy or to sell securities 
can only be "executed," if at all, on the day it is given, unless it 
is expressly stated in the order that it is "good" for a longer period 
of time or for some particular period of time. 

2. There is implied as a term or condition of an order in the 
regular form that the stockbroker shall try to "execute" the order 
as early in the time for which it is "good" as it is possible for him 
to do in accordance with the rules and customs of the stock exchange 
to which he belongs. 

These two customs are so well established that a customer 
would probably be held bound by them, even though nothing was 
said about them at the time the order was given; and hence, if he 
does not wish them to apply to an order, he must say so clearly to 
the stockbroker. Assuming they do apply, the stockbroker's first 
step after taking an order is to try to execute it at the earliest pos- 
sible moment in the time it is good for. If he neglects this duty 
he will be liable in damages. 

Now, unless he carries out the terms of the order exactly, the 
customer will not be bound, and the stockbroker will presumptively 
be liable for want of care. For, unless given discretion, the stock- 
broker cannot vary in any particular from the terms of an order, 
even where he benefits the customer by so doing. Hence, he must 
try to contract to buy or to sell according to the rules and customs 
of his stock exchange the exact amount of the particular kind of 
security stated in the order at the price or better, if any is fixed, 
or, if no price is fixed, at the highest market price for regular 
delivery. As already stated, if in any case the stockbroker suc- 
ceeds in contracting to buy or to sell as he is ordered to, he is said 
to have "executed" the order, and the order is said to be or to have 
been "executed." And this is so although the actual performance of 
the contract or contracts by the delivery of the securities and the 
payment of the price have yet to come. In executing an order the 
stockbroker can make one contract, or as many contracts with the 
same or different stockbrokers as may be necessary or advisable, 
proyided that the total amount of securities contracted to be bought 
or sold is the amount stated in the order. No custom exists allow- 
ing a stockbroker to contract to buy or sell a less amount of securi- 
ties than he is ordered to in a case where no permission is given to 
him to do so. This permission is, however, usually given with all 

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Purchase or Sale of Securities 39 

orders to buy or sell more than one hundred shares or ten bonds, 
and the number of shares or bonds stated in the order is in such 
case treated as a limit to be reached if possible. Where such per- 
mission is given, the order is said to be "executed" for as many 
shares or bonds as are contracted to be sold. 

The Commission. — When the stockbroker has contracted to buy 
or to sell according to the terms of the order, the customer's offer 
to pay him a commission according to the rules of the stock ex- 
change to which the stockbroker belongs ripens into a promise to 
do so. The customer is not bound to volunteer to pay it. He can 
wait until the stockbroker asks him for it. The stockbroker does 
not usually demand it of the customer at this time, but charges it 
against him and waits for it until he accounts to the customer. 

The Notice. — There is a custom that the stockbroker, as soon 
as he can after "executing" an order, should give or send to the 
customer a written notice of what he has done. If the notice is 
sent to the customer, it must be sent in such a way that knowledge 
of its contents can be imputed fairly to him. To do this, it would 
be held in most jurisdictions that mailing to the customer the notice, 
postage paid and properly addressed, or leaving it at his business 
office, or, if he has no office, at his home, was sufficient, without proof 
that the notice reached him, where there was no evidence that it did 
not reach him. 

Where it is the customer's intent that this custom should apply, 
and in law it will generally be presumed that he has such intent, 
the law will enforce it as a term of the stockbroker's agency, and will 
require that the notice shall be given. The stockbroker need not 
follow any particular form in giving this notice. There is, how- 
ever, a customary form which is almost always used. This states 
exactly what kind of contract or contracts the stockbroker has made, 
the date on which it or they were made, and gives, in addition, the 
name of the stockbroker or stockbrokers with whom the contract or 
contracts has or have been made. As regards the wording of such 
a notice, the same customs, technical words and technical meanings 
which are used in the wording of an order in the regular form are 
made use of in the same way, mutatis mutandis. Since these cus- 
toms have been stated, they need not be repeated here. A notice 
which would be typical would read : 

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40 The Annals of the American Academy 

"March 26, 1910. 
"We have sold for your account and risk 100 D. L. 
& W. at 285 to Brown. 

(Signed) "E. C. Smith & Co." 

The Performance of the Contract or Contracts. — If the stock- 
broker has not previously demanded and received from the customer 
the means to perform the contract or contracts he has made, he will 
demand them at the time he notifies the customer of the "execution" 
of the order, or as soon thereafter as he needs them. The customer 
is bound to comply with this demand by reason of his offer and 
promise to indemnify the stockbroker against all liability. 

As already stated, the stockbroker has authority to perform in 
the regular way the contract or contracts he has made, which au- 
thority is dormant till the contract or contracts is or are made, and 
comes to nothing if the stockbroker fails to "execute" the order. 
This authority is created by "taking" the order, and where at that 
time there is no communication from the stockbroker to the cus- 
tomer it can only rest upon his status as agent, and no contractual 
obligation to act as the customer's agent can be implied. But a con- 
tractual obligation to act as the customer's agent in performing the 
contract or contracts can be implied, and will usually be implied, from 
the deposit, at the stockbroker's implied or express request, of the 
means to perform by the customer either at the time of the "taking" 
of the order or after its execution. But it is not usual to find 
an express promise that the stockbroker will act as the custom- 
er's agent in performing. Nor is it usual to find at any point in 
the engagement of the stockbroker any express obligation binding 
him to perform the contract. It might be thought requisite that 
such an obligation should be created. If it were required it would 
be for the customer's protection, and it is not necessary for that : 
first, because of the stockbroker's duty to act in good faith and 
with due care, which arises, as has been stated, from his agency 
to perform ; and, secondly, because the stockbroker, in order to re- 
lieve himself from the personal liability he assumes in contracting 
as he does in his own name, is always ready, without being under 
any obligation to the customer to do so, to perform any contract 
he may make on behalf of a customer if the customer supplies him 
with the means to do so. 

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Purchase or Sale of Securities 41 

It does not seem necessary to describe the actual steps the 
stockbroker takes to perform in the regular way a contract or con- 
tracts he has made on behalf of a customer. In this, as in every 
other part of his agency, he must exercise due care and show good 
faith. On performing he must, of course, receive the securities 
which he contracted to buy where the customer ordered securities 
bought, and the price in money he contracted to sell for where the 
customer ordered securities sold. Since he actually receives these 
as the agent of his customer, it is his duty to account for them 
promptly to the customer. This completes the transaction. 

I have now described the customary form of engagement where 
a customer wishes to buy or to sell securities for regular delivery, its 
legal consequences, the rights of the parties, and how, in point of 
fact, the transaction is carried out under its terms. 

Where a customer wishes to buy or to sell securities for ''cash" 
instead of for regular delivery, the same customary form of en- 
gagement is used. The only difference is that the order must state 
that the securities are to be bought or sold for "cash." It follows 
that the consequences of this engagement, the rights of the parties 
and the way, in point of fact, in which it is carried out, are the same 
as have been described, with the exception that the time of delivery 
is different. 

The same is true where a customer wishes to buy or sell securi- 
ties and to postpone the delivery for not longer than three days ; and 
likewise where he wishes to buy or sell securities, granting or re- 
serving an option of delivery or calling for the delivery of the 
securities at any time within three days. 

The same is also true where a customer desires to buy or sell 
securities for "future delivery," except that in such cases there are 
important additions to the engagement of the stockbroker arising 
through the necessity of securing the customer's delivery to him of 
the securities sold or the purchase price of the securities bought 
when the time comes for the stockbroker to need the one or the 
other. This can be done in any way, but is usually done by the 
deposit of a certain amount of money, called a "margin," under 
a somewhat elaborate agreement, the terms of which have been 
established by custom. 

It may also be noted that where a customer wishes to buy 
securities on a margin? in the hope that they will increase in price, 

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42 The Annals of the American Academy 

the transaction involves a purchase of securities for regular de- 
livery made in the regular way under the customary form of en- 
gagement, followed normally by a sale of the same securities for 
regular delivery, likewise made in the regular way and under the 
customary form of engagement. And so, where a customer wishes 
"to sell securities short" there is involved a sale of securities for 
regular delivery made in the regular way under the customary form 
of engagement, followed normally by a purchase of the same securi- 
ties for regular delivery, likewise made in the regular way and under 
the customary form of engagement. But these speculative trans- 
actions have many other features, which would make this article too 
long to consider. 

But it can now be seen why it is absolutely necessary for a per- 
son intending to deal with a stockbroker, whether he intends to buy 
or sell securities outright or for future delivery or on a margin, to 
understand how a simple purchase and sale for regular delivery 
is carried out under the regular form of engagement. 



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STOCKS AND THEIR FEATURES— A DIVISION AND 
CLASSIFICATION 



By John Adams, Jr., 
Philadelphia. 



In the following article stock certificates will be classified (i) 
according to their par value, (2) according to the conditions re- 
garding their issue (i. e., whether the stock is full-paid or assess- 
able), and (3) according to the rights and limitations attaching to 
common and preferred stocks. Following this threefold classifica- 
tion the article will next discuss debenture stocks and those stock 
certificates which are analogous to preferred. Emphasis will be 
given only to such stocks as are listed on some stock exchange in 
the United States, though at times it will be necessary to touch 
upon shares traded in elsewhere. 

In the first place stock certificates may be classified according 
to their par value. The great majority of important railroad, in- 
dustrial and financial corporations have issued stock with a par 
value of $100; at the same time, however, some of the best rail- 
road stocks in the country, such as the Pennsylvania Railroad, Read- 
ing, Delaware, Lackawanna & Western, and Lehigh Valley, have a 
par value of only $50. Among the largest industrial concerns with 
shares of only $50 par may be mentioned the Westinghouse Electric 
Company, the United Gas Improvement Company, Lehigh Coal and 
Navigation, Pittsburg Brewing, and Cambria Steel. It will be 
noticed that these companies are mainly incorporated in the State of 
Pennsylvania, and it may be said that the $50 share for railroads 
and industrials is largely local to the Keystone State. Examples of 
large companies with a stock of this par value incorporated else- 
where are extremely few. The shares of two or three unimportant 
railways have a par value of $25, but that figure is found primarily 
in the issues of Boston "coppers," such as Anaconda, Calumet and 
Hecla, Old Dominion, Osceola, Quincy, Tamarack, Wolverine, etc. 
Generally speaking, these are stocks of proved value, since their 
average price is many times the figure stamped on the face of their 

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44 The Annals of the American Academy 

certificates. In the mining field we also find a large number of 
lower par values, i. e., in multiples of five dollars and even one 
dollar a share or lower. In most instances, however, these shares 
represent mining concerns which are traded in on the "curb" 
markets or on the exchanges of San Francisco, Salt Lake City or 
Colorado Springs. 

According to the laws of most states any par value whatever 
may be fixed for the stock. Consequently there are par values all 
the way from one cent, in certain mining and oil-well properties, to 
a few banks and trust companies, such as the Humboldt Savings 
Bank, and the Union Trust Company of San Francisco, and the 
West Side Bank of Milwaukee, each with shares of a par value as 
high as $1,000. The New Jersey corporation laws, under whose 
fostering influence most large industrials have been incorporated, 
provide that any par value whatever may be chosen ; but it must be 
emphasized that the vast majority of stock issues of sufficient im- 
portance to be listed on a large exchange have a par value of $100. 
It is also practically the universal rule for corporations to have the 
same par for all classes of its stock where there is more than one 
issue. Only one exception has been found to this rule, the Northern 
Commercial Company, which has $1,622,800 of common stock with 
a par of $100, and $1,620,000 preferred stock of a par value of 
only five dollars. If every share casts one vote, the reason for 
the difference may be inferred. 

Some stocks, strange as it may seem, have no par value what- 
ever. Thus, the Great Northern ore properties constitute a trust 
created in 1906, consisting of 1,500,000 "trustees' certificates of 
beneficial interest," one of which was given to every share of the 
Great Northern Railway Company when the mineral lands of that 
corporation were segregated. The Adams Express Company, a 
voluntary association, dating from 1854, likewise has 120,000 shares 
of no stipulated par value, paying dividends of eight dollars per 
share annually. Similarly, the East Boston Company, a Massa- 
chusetts corporation going back to 1833, has 150,000 shares of no 
par value; and among other companies which have adopted this 
plan several might be mentioned which to all intents and purposes 
have given their stock a par value of $100, though a "share" of 
no par value whatever is employed ; i. e., the Boston and Worcester 
Electric Companies and the Boston Suburban Electric, each with 

(526) 



Stocks and Their Features 45 

preferred stock entitled to four dollars a year cumulative dividends 
and $100 in case of dissolution. 

This Massachusetts idea, if we may so term it, was also applied 
in the reorganization plans of the Chicago Railways Company. The 
capital stock of this company is $100,000, which is used as a basis 
for 265,000 "participation certificates" of four series : The first of 
30,800 "parts," the second of 124,300 parts, the third of 60,000, and 
the fourth of 50,000. The first three are entitled, in order, to 
eight dollars cumulative dividends, and to $100 on dissolution. 
The fourth series gets the surplus dividends and capital. The 
stocks of these companies thus really have a par value of $100 
under a different name — using dollars for dividends instead of per- 
centages, and allowing the preferred $100 on dissolution. The 
reason for this policy may be found in the fact that shareholders 
cannot be held liable up to the "par value" for corporation debts, as 
is the case in some states ; and again when the capital consists of 
"parts" of no par value there may exist a good superficial answer to 
the charge of "stock watering." 

A further classification of stock certificates can be made with 
reference to their issue ; i. e., into issued and outstanding, unissued, 
and treasury stock. Unissued stock is that which has been author- 
ized but not yet disposed of. It merely represents the right to 
admit new stockholders and has no value in itself. It has no 
active stock rights and is not an asset of the corporation. It usually 
is reserved for various corporate purposes, such as the conversion 
of bonds or the purchase of new lines or plants. Treasury stock, 
on the other hand, is best described by Wood in words which have 
been frequently quoted : It is stock "issued and outstanding which 
has come into the possession of the corporation which issued it by 
purchase, donation, or in liquidation of a debt. If it has been 
issued full-paid it remains so, even if sold again below par, and it is 
considered an asset of the corporation for bookkeeping purposes. 
But such stock, so long as it is held by the corporation or its rep- 
resentatives as treasury stock, neither participates in dividends nor 
in the meetings of the corporation as treasury stock ; though it still 
represents a paid-for interest in the property of the corporation." 
Treasury stock is issued, but is evidently not outstanding. Ex- 
amples most frequently occur in mining companies, though there 
the term is usually misapplied, being used to describe unissued stock 

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46 The Annals of the American Academy 

in the company's treasury. Among industrials holding a consider- 
able amount of treasury stock may be mentioned the United States 
Cast Iron Pipe and Foundry Company, the Pacific Coast Company, 
the American Beet Sugar Company, and the Pittsburg Brewing 
Company. 

Stocks can also be classified according to whether they are full- 
paid or assessable. Full-paid stock is simply that which has been 
fully paid for as required by law in money, property or labor. The 
certificates of such stocks are issued stamped "full-paid and non- 
assessable/' and, in the absence of any special statute on the subject, 
carry with them no legal liability. Assessable stock, on the other 
hand, is that which has not been fully paid for by its subscriber. 
Just as Boston is the home of many mining shares with a par 
value of $25, so it is also the market for many assessable shares. 
Calumet and Hecla stock has paid in only $12 on a par value of 
$25; Franklin, $10.20; Tamarack, $13; Allouez, $22.25; Wolver- 
ine, $13, etc. Similarly, in the Metropolitan Securities Company, 
one of the constituent corporations of the Interborough-Metropolitan 
Company, only $75 has been paid in on a par of $100; the Philadel- 
phia Electric Company, only $15 on a par value of $25; the Union 
Traction Company of Philadelphia, only $17.50, though it is now 
receiving a guaranteed dividend of 6 per cent, on its $50 par value. 
It should be emphasized, however, that outside of mining and public 
utilities corporations, assessable shares are comparatively few. Very 
few instances of such stock are listed on the New York Stock 
Exchange. The legal status of assessable stock is such that creditors 
of the corporation can hold the owners of the shares liable for the 
difference between the amount actually paid in and the par value 
of the stock. 

Turning next to a discussion of the various features of common 
and preferred stock, we find that the classification, to be complete, 
must be very elaborate. An outline is inserted on page 47 to enable 
the reader to follow more readily the following classification. 

"Common stock," meaning the junior issue, when there is pre- 
ferred stock, or stock analogous to preferred, sometimes has a real 
preference in regard to voting, for there are instances where the 
preferred gives up the right to vote as a consideration for its receivr 
ing regular dividends. The usual provision is that if such disburse- 
ments are discontinued for a certain period, varying with the indi- 

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Stocks and Their Features 



47 



vidual corporation, the preferred stock shall resume its voting power. 
Leading corporations in which the common stock has exclusive vot- 
ing power, under the foregoing conditions, are American Smelters 
Securities, American Tobacco, Interborough-Metropolitan, Royal 
Baking Powder, and United Cigar Manufacturers' Company. All 
of them, with the exception of the Interborough-Metropolitan Com- 
pany, have maintained regular dividends; the latter defaulted in its 
obligations toward its preferred stock in 1907, so that at the present 
time this issue has full voting rights. 

Classifications of Stock Certificates According to the Rights and 
Limitations Attaching to Various Types of Stocks. 

1. Common. 

2. Deferred. 

Cumulative (industrials, gener- 



3. Preferred, as to < 



Dividends (always) 



Assets 



Voting power 



Other features 



4. Stocks analogous to Preferred 



5. Debenture. 



ally). 
Non-cumulative (railroads, gen- 
erally). 

Railroads (not often). 
Industrials (generally). 

Exclusive (seldom). 
Special (often). 

Callable. 

Convertible. 

Participating. 

Interest-bearing. 
Special stock. 
Guaranteed. 
Founders'. 



Common stock generally has the right to receive all the surplus 
remaining for dividends after the preferred has been paid its stipu- 
lated percentage ; and in a growing country such as the United States 
this feature is valuable, provided there is any worth in the com- 
pany. The Union Pacific Railroad common receives 10 per cent., 
but the preferred is forever limited to 4 per cent. The American To- 
bacco Company began with a regular 6 per cent, dividend on the pre- 
ferred and 20 per cent, on the common, but increased the amount paid 

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48 The Annals of the American Academy 

on the common almost annually, until now it stands at 35 per cent. 
These two companies are exceptional, but there are scores of well- 
known corporations, such as Atchison, American Light and Traction, 
American Radiator, American Snuff, H. B. Claflin Company, East- 
man Kodak, and Philadelphia Company, to name only a few, where 
the common receives more, and frequently a great deal more, than 
the preferred. It is to be noted, however, that in some cases the 
preferred participates in the surplus left after dividends of a cer- 
tain percentage on the common have been paid. This class of pre- 
ferred stock, and its relation to the junior issues, will be treated 
later in its appropriate place. It is evidently not an advantage to 
the common stock to have such preferred stock ahead of it. 

Common stock usually has the right to share equally with the 
preferred in the corporate assets on the dissolution of the company. 
In many cases, however, especially the New Jersey industrials, 
which include practically all the large "trusts," the preferred stock 
has a preference in this respect. It is evident that in corporations 
where the common stock receives a large dividend, as those named in 
the preceding paragraph, that on the distribution of the property 
producing such a revenue the common would receive more than the 
preferred. Conversely, if the company were weak, and especially 
if preferred dividends were in default, it is easily conceivable that 
the common would receive little or nothing, as in the latter case 
all back cumulative dividends are generally treated as an additional 
part of the preferred capitalization. . 

"Deferred" stock is an issue commonly used in England, but 
only infrequently met with in the United States. The name itself 
is largely explanatory of its nature. It is an issue on which divi- 
dends are deferred until dividends on some other variety of stock, or 
interest on some particular bonds, have been paid. The common 
stock of companies possessing this issue is usually divided into two 
parts — one, the "B," or ordinary stock, and the deferred, or "A" 
stock, which receives no dividends until a certain fixed rate has been 
paid upon the "B" stock. Both of these issues are junior, of 
course, to the "preference stock," as it is called in England. The 
corporations which possess this class of stocks are usually English 
either in their inception, location or management. In this country 
we may mention Arizona Copper, and the Alabama, New Orleans, 
Texas & Pacific Junction Railways, Limited, as examples. The 

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Stocks and Their Features 49 

old Alabama Great Southern Railroad, which was merged into an 
American company of the same name in 1906, and the National 
Railroad of Mexico, merged with the Mexican Central in 1908 into 
the National Railways Company of Mexico, both possessed this fea- 
ture. None of these issues, however, has ever been of importance 
on the stock exchange. 

Having explained the nature of deferred stock, we may now con- 
sider preferred stock. This class may have a preference in any 
one, any two, or all three, of three particulars; i. e., dividends, 
always ; assets, generally, and voting power, at times. It may also 
be "callable," "convertible," or "participating." 

Such stock always has a preference over the common as regards 
dividends, which may be either "cumulative," or "non-cumulative," 
the former being in the nature of a fixed charge, because if the cor- 
poration is unable to pay the dividend in one year, it must be paid in 
succeeding years, together with the dividends for those years, before 
the common can receive anything. No such duty attaches to non- 
cumulative stock. If the dividend cannot be paid this year, the 
rights of the common to share in next year's earnings are in nowise 
impaired. "Railroads are non-cumulative, industrials generally 
cumulative," so runs the rough-and-ready distinction. It is hardly 
exact, since, as the following table shows, there are numerous rail- 
roads that have a cumulative dividend feature in their preferred stock 
issue : 

Amount of _ , . 

Name. Preferred Stock Cumulative Remarks. 

Outstanding. Kate. 

Allegheny Valley $17,174,000 3% Mostly exchanged for 

Pennsylvania R. R. 
stock. 

Central Pacific 13,600,000 4% 

Chicago & Alton 879,300 4% "Prior lien and par- 

ticipating stock." 

Cincinnati, New Orleans & 
Texas Pacific 2,453,400 5% 

Rutland 9,057,600 7% About 180% in ar- 

rears. 

It is of importance to notice that of late it seems customary 
in railroad reorganizations to insert a cumulative clause for the pre- 
ferred stock in the new charter. But dividends do not become cumu- 
lative for a few years, in order to give the road an opportunity to 

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5<3 The Annals of the American Academy 

become firmly established before it must meet the fixed cumulative 
dividend obligation. Pere Marquette first preferred stock, to the 
extent of over eleven millions, becomes a 4 per cent, cumulative 
issue after June, 191 1; Chicago, Great Western preferred, over 
forty-one millions, is to be 4 per cent, cumulative after. June, 1914; 
the Seaboard Company, the holding corporation for the Seaboard 
Air Line, is to give 5 per cent, cumulative dividends, after 
July, 1910, on its issue of over six millions of first preferred. In 
fact, there is over $150,000,000 of preferred railway capital that 
is now, or soon will be, receiving cumulative dividends. But this 
amount, large as it may seem, is relatively small, compared with 
the total of more than $1,500,000,000 of preferred stock of Amer- 
ican railroads outstanding. 

The general rule referred to a moment ago is correct in stating 
that industrial preferred stock issues are generally cumulative, since 
about two-thirds of them contain this feature. Among the im- 
portant corporations that have not included this cumulative feature 
may be mentioned : American Car and Foundry, American Linseed, 
the Pacific Coast Company issues, Pressed Steel Car, Sloss-Sheffield, 
and United States Rubber, first and second preferred. These com- 
panies, however, are not important relatively in their aggregate 
capital when compared with American Smelting, American Sugar, 
American Tobacco, United States Steel, and other large issues, 
which contain the cumulative feature. The non-cumulative pre- 
ferred shares among industrials generally represent corporations 
not of the first rank. The large companies — the "trusts" — had to 
make their preferred stock attractive to investors by adding the 
cumulative feature when they came to market their securities in 
the great era of trust promotion. 

Under the subject of common stocks, the preference as to assets 
on dissolution which the preferred often enjoys was spoken of. 
This feature is quite general, as was there stated, among industrials, 
but not common in the case of railroads. The following important 
railway systems, however, have incorporated this feature in their 
charters : Atchison, Chicago & Alton, Chicago Great Western, Hock- 
ing Valley, National Railways of Mexico, first and second preferred 
in order ; Norfolk & Western, Pere Marquette, Rock Island, and 
Seaboard Company. In this list will be noted the three recently 
reorganized corporations which have cumulative dividends. Evi- 

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Stocks and Their Features 51 

dently it is becoming customary to give the preferred stock of 
new railways as many benefits as possible. In the case of indus- 
trials it is advisable to reverse the classification, as was done 
under dividends, and name only those stocks which are not pre- 
ferred as to assets, viz. : American Sugar, Philadelphia Company, 
Pittsburg Coal, and United Railways of St. Louis. Practically every 
large industrial concern has its preferred stock protected by giv- 
ing it this preference should it ever become necessary to distribute 
the corporate assets. This, of course, will generally be an ad- 
vantage, but in the case of very strong companies it may not be, 
as has already been pointed out. To obviate this a few concerns, 
all unimportant, have provisions like the Merchants Warehouse 
Company, to the effect that the preferred stock has the first claim on 
all assets up to $100 a share, and then shares the balance with the 
common after that issue has received $150 a share. As stated 
before, according to the laws of the State of New Jersey, under 
which most of the large industrials have incorporated, preferred 
stockholders are to receive preference in the distribution of cor- 
porate assets on dissolution, up to par, the balance going to the 
common stock (Act of 1896, sec. 86, ch. 185). In a few instances 
the preferred stock has a preference to an amount over par. 
Dominion Coal, for example, is preferred up to $115 a share. Elec- 
tric Storage Battery, on the other hand, is only preferred up to $10 a 
share, although the par value is $50. In most cases, too, unpaid 
cumulative dividends must be settled for out of assets before the 
common stock can receive anything. 

The superior voting right which the common stock sometimes 
possesses has already been spoken of. The preferred, likewise, in 
some instances, carries the entire voting power, though not so often 
as the common, and generally in less important corporations. The 
Rock Island Company is the only example of first rank where the 
preferred stock has exclusive voting power. This fact was instru- 
mental in the stock exchange investigation of the sensational rise 
in the common stock on December 27, 1909, and its equally sudden 
decline, for it conclusively negatived the idea of a "fight for con- 
trol," and stamped the movement as purely manipulative. On the 
other hand, the preferred stock often has a voting preference in 
regard to special matters — usually in case of the creation or in- 
crease of funded debt, or the enlargement of the preferred issue 

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52 The Annals of the American Academy 

itself. More than a majority of the issue, usually two-thirds to 
three-fourths, is required to sanction such changes. The follow- 
ing preferred stock issues, among others, may be cited as pos- 
sessing such features : Atchison, National Railways of Mexico, 
Norfolk & Western, Reading, both first and second preferred, 
Southern, American Can, American Snuff, Central Leather, In- 
terborough-Metropolitan, Sears-Roebuck & Co., United Cigar Manu- 
facturers, etc. As a general rule, such provisions are not of great 
practical value. 

Mention may be made here of the various classes of preferred 
stock, and the safeguard that is occasionally thrown around pre- 
ferred dividends in the shape of what may be called ''dividend 
funds." The difference between a first and second preferred stock 
is this : that while both are senior to the common, the first pre- 
ferred ranks ahead of the second in regard to receiving dividends, 
and in some cases has priority as regards assets, also. Of the corpo- 
rations whose stocks are active on the New York Exchange only 
about 5 per cent, possess two or more classes of preferred. Space 
will not permit the giving of a complete list of corporations having 
more than one issue of preferred stock. A few important corpora- 
tions, however, should be mentioned as belonging to this class : Colo- 
rado & Southern, Erie, National Railways of Mexico, New York, 
Chicago & St. Louis, Pere Marquette, Reading, Seaboard Company, 
St. Louis & San Francisco, Wheeling & Lake Erie, American 
Smelters' Securities, Associated Merchants, H. B. Claflin Company, 
Chicago Railways, Pacific Coast, and United States Rubber. All 
of these corporations have two classes of preferred stock, except the 
Chicago Railways Company, which has three, as has also Concord 
& Montreal. No instance of a corporation having more than three 
classes of preferred stock has been found. 

A few corporations have made provision for the accumulation 
of a certain fund out of which dividends on the preferred shall be 
paid during times of business depression, when earnings are not 
sufficient to meet such payments. The National Railways Company 
of Mexico affords an example. To insure semi-annual payments 
of I per cent, on the first preferred for three years from January 
I, 1908, a separate fund of $1,800,000 of prior lien bonds and 
$1,200,000 of guaranteed general bonds was set aside, and these 
or their proceeds may be drawn upon to the extent that net profits 

(534) 



Stocks and Their Features 53 

shall not be sufficient to make such payments. A similar provision 
attaches to the preferred stock of United Factories, Limited. 
United Cigar Manufacturers, and Sears-Roebuck & Co. have re- 
quirements that a surplus of $1,000,000, in each case, shall be 
accumulated before any dividend shall be paid on the common. 
This, of course, serves as a protection to the preferred stock- 
holders, for if there were no such surplus when net earnings were 
little above the amount needed for preferred dividends, it might 
not be deemed advisable to declare such dividends, unless there 
were such a surplus fund to fall back upon for working capital. 
But, as said before, such provisions are infrequent. 

It is proper to state here that what is commonly known as 
"preferred" stock need not necessarily, in many cases, be called 
by that name at all. Under the laws of many states, stock pos- 
sessing the characteristics of preferred stock may be known by 
almost any name, so long as that name does not generally import 
some other variety of stock. Concord & Montreal has its stock 
divided into classes I, II, III and IV, class IV corresponding to com- 
mon stock. In this case, however, the distinction is of very little 
practical account, because all four classes are guaranteed 7 per 
cent, dividends by the Boston & Maine Railroad. With the Chi- 
cago Railways Company, however, it is different, since its "par- 
ticipation certificates," series I, II and III, as explained previously, 
are really preferred, while series IV is common. At any rate, the 
immense majority of corporations call their preferred stock simply 
"preferred." 

It should next be noted that preferred stocks may possess any 
one of three special features — they may be "callable," "convertible" 
or "participating." Very many preferred stocks are issued to pro- 
cure money for corporate purposes on the inception of the com- 
pany, when not much could be realized by the sale of common 
stock, and bonds could be marketed only at a discount. Such com- 
panies may have hopes that in time their business will so improve 
that by issuing bonds at a low interest rate, or by selling addi- 
tional common stock, they can retire the preferred stock, leaving 
the common stock in a much better position. Hence the callable 
feature may be inserted. This is never obligatory on the corpora- 
tion, but merely optional with the directors. It is the opposite of 
the "convertible" feature, which depends on the stockholders' 

(535) 



54 The Annals of the American Academy 

option. The following is a table of callable preferred stocks, 
showing their provisions as to the time of redemption, and the 
calling price. If no time is specified, the company's option is 
understood. 

Table of Callable Preferred Stocks. 

Railroads. Time. Price. Remarks. 

Chicago Gr. Western Par and div'nds "If and when al- 
lowed by law." 

Erie, ist and 2d p'f'd Par 

Hocking Valley Par 

Reading, 1st p'f'd Par 

Reading, 2d p'f'd Par "If and when al- 

lowed by law." 

Seaboard Co., ist p'f'd Par 

Seaboard Co., 2d p'f'd. After 1912 no "Provided ist pre- 

ferred has been 
redeemed or con- 
Industrials. verted." 

American Cotton Oil 105 

Am. Cities Ry. and 

Light On any dividend 

date 107^2 and div'nds 

Am. Smelters, Sees. 

"B" After 1930 Par 

Amer. Typefounders.. On 30 days' notice. 105 "Only by vote of 

two-thirds of di- 
rectors." 

Borden's Cond. Milk no "All, or any." 

Consolidated Gas, of 

Baltimore 120 and div'nds 

Dominion Coal and 

Iron After May 1, 1910. 125 and div'nds If not previously 

converted into 
Dominion Iron and common. 

Steel On 3 mo's' notice. 115 and div'nds Subject to conver- 
sion for 30 days 
after notice. 
General Asphalt On 90 days' notice.no Subject to conver- 

sion during pe- 
Michjgan State Tele- riod of notice. 

phone Feb. 1 of any year . Par and div'nds 

National Lead Par 

Sears, Roebuck & Co 125 and div'nds "All, or any." 

United Railways In- 
vestment 1 10 and div'nds 

(536) 



Stocks and Their Features 55 

A much larger list could be compiled, but it is better to 
present only typical or fairly large companies. The industrials 
are generally redeemable at a premium, and are hedged with definite 
provisions regarding the time at which the company may exercise 
its right. The railroads, on the contrary, are nearly always call- 
able at par, and at any time the company may choose. It is gener- 
ally considered a disadvantage to have a stock callable, as the holder 
must then seek new fields for his capital, usually just when the 
investment begins to look attractive. A company never calls stock 
when it is in difficulties ; Tonopah, of Nevada, called its preferred 
just before it began dividend payments on the common; and 
Northern Pacific, which was called at par, January I, 1902, had 
been paying dividends only a few years. 

On the other hand, it is usually advantageous to possess a 
convertible stock. Here the option is with the stockholder, not 
with the company. The Reading Company's second preferred stock 
is an exception, being convertible into one-half first preferred and 
one-half common at par on vote of the directors. As the common 
is now selling about $30 above its par of $50, and the first preferred 
only a little below par, the convertible feature is valuable, and ex- 
plains why the second preferred sells at a level considerably above 
the first. There is, however, a clause that is seldom reproduced 
in statistical works i. e. that the second is callable at par, "if and 
when allowed by law," which is apparently unknown, or if known, 
disregarded, by those who keep the second preferred at its present 
price level, in the hope that the directors will allow conversion. It 
reminds one of the story, probably untrue, that Mr. Harriman did 
not know, when he bought Northern Pacific preferred, that the 
stock could be called, before the directors took that action. Cer- 
tain it is that their power so to do was never paraded before the 
public, and it lay, a secret to the "outsiders," in the recesses of 
the railroad's charter. 

Among industrials, Allis-Chalmers preferred stock is convert- 
ible into common at par, but, of course, no one is doing so, as the 
common is selling around 12, and the preferred about 40. Asso- 
ciated Merchants first preferred stock is convertible into second pre- 
ferred or common stock at par while the books are open ; Dominion 
Coal preferred, into common at par before May 1, 1910; and Do- 
minion Iron and Steel preferred into common at par, and at any time. 

(537) 



56 The Annals of the American Academy 

Electric Storage Battery allows conversion on the same terms as the 
Dominion Iron and Steel Company, and practically all of the pre- 
ferred has been converted. The General Asphalt Company allows 
conversion on the basis of $150 common stock for $100 preferred; 
and the Hudson & Manhattan Railway, into common at no, after 
July 1, 191 1. The list is not so long as that of the callable preferred 
issues. Southern Pacific, on July 15, 1909, gave its preferred 
stockholders three options; $115 in cash, or $20 cash and $100 in 
4 l /2 per cent., twenty-year debenture bonds, or conversion into com- 
mon, par for par. Practically all of the holders of the preferred 
issue availed themselves of the conversion privilege. The holders 
took a stock paying 1 per cent, less dividend than they formerly 
received, but the company has as large possibilities before it as Union 
Pacific did a few years ago, and they undoubtedly will be rewarded 
in the end, for they now have a "general" stock, which has the 
right to all earnings after interest charges have been met. The con- 
version feature as attached to bonds is old and much employed, 
but when connected with preferred stocks is comparatively recent, 
and has been criticised in court decisions. 

The participating feature of certain preferred stocks is com- 
paratively unknown to the public ; yet it is of the utmost import- 
ance, for it is practically only in this class of preferred stocks that 
the holder has an income unlimited except by the company's earning 
power. In cumulative preferred stocks he is nearly always limited 
to his fixed percentage, but here he shares with the common stock the 
surplus remaining after a certain amount has been paid on that 
class. Following is a table showing the principal railroad and 
industrial companies that have included this feature, together with 
the terms of the participation: 

Table of Participating Preferred Stocks. 

Railroads. Preferred Common After Which. 

Receives. Receives. 

Buffalo, Roch. & Pittsbg... 6% 6% Both share pro rata. 

C, M. & St. Paul 7% 7% Both share pro rata. 

Chicago & Northwestern . . 7% 7% Preferred 3%, then com- 

mon 3%, then share pro 
rata. 

C, St. P., M. & 7% 7% Both share pro rata. 

Hocking Valley 4% 4% Both share pro rata. 

Iowa Central 5% 5% Both share pro rata. 

(538) 



Stocks and Their Features 



57 



_ , , Then 

Railroads. Preferred Common After Which. 

Receives. Receives. 

Lake Erie & Western 6% 6% Both share pro rata. 

Minn. & St. Louis 5% 5% Both share pro rata. 

M., St. P. & S. S. M 7% 7% Both share pro rata. 

N. Y. C & St. L., ist p'f'd. 5% 5% Second preferred 5%, then 

all share. 
Pittsburg, Clev., Cinn. & 
St. Louis 4% 3% Preferred 5%, then com- 

mon 5%, then share. 

Wabash 7% 7% Both share equally. 

Wisconsin Central 4% 4% Both share equally. 

Industrials. 

Allis-Chalmers 7% 7% Preferred receives 1% extra. 

Associated Merchants, ist 

and 2d preferred 7% 7% Both preferreds receive Y 2 % 

for each 1% paid on 
common over 7 %. 

Consolidated Traction 6% 6% Both share equally. 

Electric Storage Battery .. 1% 1% Both share equally. 

Pacific Coast, 2d preferred. 4% 4% Both share equally. 

Westinghouse Electric .... 7% 7% Both share equally. 

Among the railroads, Chicago & Northwestern preferred stock 
is now receiving 1 per cent, additional, and the same is true of the 
Pittsburg, Cincinnati, Chicago & St. Louis Railroad. In the in- 
dustrials, Pacific Coast second preferred is now on a 5 per cent, 
basis with the common ; Electric Storage Battery has 4 per cent, paid 
to it instead of 1 per cent. ; Westinghouse Electric for four years be- 
fore the panic of 1907, which threw it into the hands of a receiver, 
was paid 10 per cent., and is now paying its regular 7 per cent. In 
a few of these companies, such as Allis-Chalmers or Wabash, the 
participation feature is of little value, as there is small chance that 
earnings will ever permit of any payments at all on the common. 
However, most of the corporations, whose preferred stocks are not 
now participating with the common, are paying regular dividends on 
their senior issue, and there is a fair prospect that in time, as the 
country develops and grows richer, the earnings will so increase 
that the right to participate with the common in surplus earnings 
will be a valuable feature of the preferred. The same remarks 
apply to conversion, which may not be advisable now, but which, 
with the onward march of this "bull" country, as it. has frequently 

(539) 



58 The Annals of the American Academy 

been termed, will in the future become a prized feature of stock 
that has been bought for the "long pull." 

Following our classification of stocks we may now consider 
those stocks which are analogous to preferred. The first of these 
is interest-bearing stock which is really only another name for 
preferred stock. For interest (instead of dividends) must be paid 
upon it before there can be any disbursements on the common. 
Paradoxical as it may seem to the idea of a stock contrasted with 
that of a bond, the payment of interest may be enforced at law, 
as the subscription to the stock is regarded "as a contract in the 
nature of an agreement to pay a dividend, but is lawful only when 
it can be construed as requiring payment of such interest from 
profits alone." Such issues are obsolete to-day; no examples 
are found in the various manuals. There is no reason, however, 
why a corporation should not issue such stock, should it deem it 
advisable. From the records we have selected the following 
examples : 

Detroit & Milwaukee, acquired by the Great Western of Canada, 
which in turn was absorbed by the Grand Trunk. 

Cleveland & Toledo, leased to the Cleveland, Painesville & 
Ashtabula, which was consolidated with the Lake Shore. 

Vermont & Massachusetts, leased to Boston & Maine. 

Pittsburg & Connellsville, merged with the Baltimore & Ohio. 

Pittsburg & Steubensville, acquired by the Steubensville & 
Indiana, which was taken over by the Pittsburg, Chicago & St. 
Louis, which was ultimately absorbed by the Pennsylvania Company. 

Troy & Greenfield, acquired by the Troy & Boston, which was 
taken over by the Fitchburg, which in turn was leased to the Boston 
& Maine. 

All of the above companies were comparatively small, and all 
have been absorbed by larger systems, generally leaving no trace of 
their stock. Consequently, the subject is of but little more than 
academic interest. 

"Special stock" is a creation of certain Massachusetts statutes, 
especially the Acts of 1855 and 1882. Under the latter enactment, 
manufacturing "and other corporations," by vote of three-quarters 
of their stockholders at a meeting called especially for this purpose, 
may authorize "special stock," which must never exceed two-thirds 
of the actual capital, bearing semi-annual dividends not exceeding 

(540) 



Stocks and Their Features 59 

4 per cent., and subject to redemption at par after a fixed date, 
which must be expressed on the certificate. The holder of such 
stock is in no case liable for the debts of the corporation. Instances 
of such stock crop out now and then because of lawsuits over the 
rights of their holders, but as these generally only occur after the 
insolvency of the corporation, they are of little use if we wish a pres- 
ent example. The Boston Machine Company had such stock, as did 
the Greenfield Tool Company, but both are defunct. The nearest 
modern analogy is a callable preferred stock, but it also resembles in 
some ways a short-term note, for the obligation to pay dividends is 
absolute, not, as in interest-bearing or ordinary preferred stock, con- 
tingent on there being sufficient profits so to do, and it is also usually 
redeemable in a short time. 

"Guaranteed stock" is a term properly applied to the stock of a 
company, the dividends on which are guaranteed by another cor- 
poration, provided there are sufficient earnings to meet them, but 
not otherwise. It is sometimes erroneously employed as describing 
preferred stock, i. e., the corporation guaranteeing the dividends on 
its own stock. Guaranteed stocks usually arise from a consolida- 
tion or lease of one road, or industrial corporation, with or to 
another, and are much more frequently found in the case of rail- 
roads than industrials. A full list of all the guaranteed stocks in the 
country would occupy pages, and thus only a few important ex- 
amples are given : 

Railroad Guarantor. Terms. 

Catawissa Reading 5% on stock, and $8,000. 

Central of Vermont Grand Trunk Traffic guarantee. 

Cleveland & Pittsburg Penna. 7% on stock, and bond in- 

terest. 

Concord & Montreal B. & M 7% on stock. 

Delaware P. W. & B. (Penna.) .Net earnings. 

Fitchburg B. & M 5% on preferred, 1% on 

common, bond interest and 
expenses. 

Old Colony N. Y., N. H. & H. ..7%, and stock convertible 

into New Haven. 

Pittsburg, Ft. Wayne, etc. . Penna 7% on stock, and on "special 

improvement," etc. 

Among industrial corporations guarantees of stock are rare. 
American Smelters Securities, preferred "B," is the only example of 

(541) 



6o The Annals of the American Academy 

importance. They are generally confined to public service corpora- 
tions. Most guarantees are successful — the guarantor maintaining 
the dividends promised. Some are not, but there are few as bad 
as the lease of the Pere Marquette to the Cincinnati, Hamilton & 
Dayton for 999 years, in March, 1905, for 5 per cent, on the com- 
mon and 4 per cent, on the preferred of the former, both companies 
going into the hands of a receiver in December of the same year. 
The lease was subsequently annulled. It argues a close study of 
the earnings and financial condition of the company itself, a careful 
scrutiny of the affairs of the guarantor, and not the mere acceptance 
of the word "guarantee" as proof of the possession of a gilt-edged 
investment. 

The leased-line stock of the Illinois Central, amounting to 
$10,000,000, and paying 4 per cent., secured by the deposit of 
stocks of equal value, compared with $123,552,000 common, may be 
said, in a sense, to be "guaranteed," though it is not within the 
definition given above. Similarly, the stocks with provisions for the 
accumulation of special funds, or surpluses, mentioned before, have 
something in the nature of a guarantee, though they are evidently 
not "guaranteed." 

"Founders' stock" is practically unknown in this country. No 
instance can be found in the manuals, though it may exist in small 
corporations. Briefly, it may be said to be stock ranking ahead 
of preferred, entitled to a certain fixed dividend and then to a 
certain proportion of the surplus after dividends on all classes have 
been paid. Assume a corporation with $100,000 6 per cent, 
founders' stock, $4,900,000 6 per cent, preferred, and $5,000,000 
common stock, and a balance for dividends for the year of $1,000,- 
000. The founders' stock would receive $6,000, the preferred 
$294,000, and the common, say, $250,000. The surplus for the 
year would then be $450,000. The founders' stock is entitled to 
a certain proportion of this — fixed by the articles of incorporation — 
usually one-quarter to one-half. Thus, in addition to its 6 per 
cent., this class would be paid from $112,500 to $225,000, making an 
extra dividend of from 112^ to 225 per cent., according to the pro- 
portion of the surplus it would receive. If we were to capitalize the 
last figure at 6 per cent., the stock would be worth about $3800 a 
share. There are other provisions concerning the method of arriv- 
ing at the amount to be distributed in dividends, but this is the 

(542) 



Stocks and Their Features 61 

most usual. It was formerly common in England, but is now 
looked upon with disfavor. Such stock is usually given to pro- 
moters, or to persons of influence in consideration of their lend- 
ing the weight of their names to new corporations, and is, naturally, 
highly valued by its fortunate possessors. Under the laws of New 
Jersey it is legal to create such stock, but published instances are 
wanting. 

Having described the various classes of preferred stocks and 
their characteristics, and those analogous to preferred issues, there 
still remains for discussion the so-called debenture stock. This 
class of stock may be said to be on the margin between mortgage 
bond issues and regular stock issues. To the ordinary person a 
"debenture" signifies a non-mortgage bond. But it is also used to 
describe a stock. The whole amount secured may be "treated as 
borrowed capital consolidated into one mass for the sake of con- 
venience," and certificates issued entitling the holder "to a certain 
sum, part of this mass." It differs from stock in that the company 
promises, generally in the form of a covenant, to pay interest on 
specified dates. This interest has priority over dividends on any 
class of stock whatever, whether guaranteed or not. Such issues 
are common in England and Canada, but rare in the United States, 
though debenture bonds are well known here. The old Chicago 
Great Western Railway had such an issue, which, as it should, 
fared much better in the reorganization than either of the preferred 
stocks. The Green Bay & Western Railroad has two classes of 
debentures — class "A," $600,000; class "B," $7,000,000 — compared 
with $2,500,000 of common stock. The Canadian Pacific, also, has 
a large issue of irredeemable debenture stock — for such stock may 
be thus issued, or with provisions providing for redemption after 
a certain date. The Canadian Northern Ontario has debentures to 
be paid off in 1936, while those of the Canadian Northern Quebec 
are perpetual. 

Throughout this classification nothing has been said of values, 
the present task being mainly one of exposition, and not of advice. 
In closing, we express the hope that intending purchasers will look 
well to the class of stock in which they contemplate investing, ex- 
amining all of the provisions of that particular issue ; consulting, 
if necessary, the articles of incorporation of the company. Only 
by knowing the provisions of the stock certificate — is it callable or 

(543) 



62 The Annals of the American Academy 

convertible, participating or not, preferred as to assets, etc., and 
any other special features that may exist — can an investor be pre- 
pared, not only to avoid losses, but to gain safety and profits. 
A fundamental error in regard to the features of the stock may 
defeat the results of the most painstaking analysis of value, and 
when such provisions can usually be so easily ascertained, there is 
no reason for encountering risks, or allowing profits to escape that 
might otherwise accrue. 



(544) 



PREFERRED STOCKS AS INVESTMENTS 



By John Moody, 
Editor Moody's Magazine, Author Moody's Analyses of Railroad Invest- 
ments, New York City. 



The modern security investment field is so broad that intelli- 
gent knowledge on the part of the average investor can only be 
gained by following the opinions of those who specialize in their 
study of the different classes of investments. Twenty-five years 
ago it was comparatively easy to acquire a sound knowledge of 
the general investment field, and to pass judgment on the stock and 
bond issues which made up the bulk of the market transactions in 
those days. 

But with the great development in corporate enterprise through- 
out all lines of production and distribution, which has been the chief 
characteristic of the last generation, the different types of securities 
have multiplied in number to an almost unlimited extent. While as 
late as 1890 a general opinion could be safely passed on stock in- 
vestments as a class, the different types of stocks which are daily 
sought for investment nowadays are often so different in their 
characteristics and general position that not only must each class 
be judged by itself, but a great many issues of the same general 
class have distinct traits which go far to affect directly their position 
and value as investments. 

Generally speaking, a preferred stock of a railroad or other 
corporation is in a more desirable investment position than is a com- 
mon or ordinary stock. But this is not universally the case, and 
there are numerous issues of ordinary or common stocks which are 
more attractive as investments than even the preferred stocks or 
bond issues of the same corporations. 

A preferred stock is ordinarily an issue which is limited in 
authorized amount, and has a preference in its claim on the divisible 
profits of the corporation up to a certain percentage. In some cases 
a preferred stock will have a prior claim on the assets of the corpo- 
ration, so that in the case of dissolution preferred stockholders would 

(545) 



64 The Annals of the American Academy 

be satisfied up to the par value of their shares before the common 
stockholders received any of their principal. 

In the railroad investment field it will be found that preferred 
stock issues abound with different characteristics which bear on 
their interest in the properties or in its profits. Thus, a preferred 
stock issue of the simplest type, like that of the Union Pacific Rail- 
road, has a prior claim to dividends at the rate of 4 per cent, per 
annum, when earned, but has no interest whatever in any further 
amount of the profits which may in any one year be available for 
dividend distribution. An issue of this kind also has a prior claim 
on the assets up to its par value before the common stock comes in 
for any interest in the latter. 

The terms of preference, as outlined for the Union Pacific Rail- 
road above, are the ones which have usually been followed in the 
formation of the large railroad corporations during the past ten or 
fifteen years. Many of the earlier railroad organizations, however, 
issued preferred stock which carried other rights as to both dividend 
payments and interest in assets, etc. For example, the preferred 
stock of the Chicago, Milwaukee and St. Paul Railway has a prior 
claim to 7 per cent, non-cumulative dividends, after which the com- 
mon stock is entitled to receive 7 per cent., and thereafter both 
common and preferred stock share alike in any further dividend dis- 
bursements. In the case of the Chicago and Northwestern Railway, 
the preferred has a prior claim to 7 per cent., then the common stock 
to 7 per cent., then the preferred stock has a further preference to 
3 per cent., then the common to 3 per cent, more, after which both 
stocks share pro rata in any further distribution. 

In the case of the Erie Railroad there are two issues of pre- 
ferred stock, each of which is respectively preferred as to assets, 
and also has preference to 4 per cent, non-cumulative dividends. 
A unique feature in the case of the Erie Railroad is that both the 
preferred and common stockholders share their voting power with 
the first consolidated mortgage bonds of the company. Another 
feature which is characteristic of this company, and of a number of 
other railroads, is that both of the issues of preferred stock are re- 
deemable at par at the option of the company. 

Other characteristics which differentiate the preferred stock 
issue from the ordinary kind are related to the voting power. While 
in the railroad field the great majority of preferred stock issues have 

(546) 



Preferred Stocks as Investments. 65 

equal voting power with the common stock, some of them have not. 
For example, the Evansville and Terre Haute Railroad preferred 
stock issue is entitled to 5 per cent, non-cumulative dividends, but 
has no voting power whatever. In other cases we find that the vot- 
ing power is limited to such time as that in which dividends are 
discontinued or not paid. 

It will often be found that a preferred stock issue carries some 
convertible provision whereby it may, at the option of the holder, 
be converted into common stock of the same company. This pro- 
vision was a characteristic of the preferred stock of the Southern 
Pacific Company, and the holder had the right, at any time, to ex- 
change his shares for common stock. Usually, however, where a 
preferred stock is convertible into common, it is also redeemable 
at the option of the company itself at some fixed price. The South- 
ern Pacific stock, above mentioned, was redeemable up to July, 1909, 
at the option of the company at 115, and was redeemed at the expira- 
tion of the option. 

In the case of the Reading Company, we find that there are 
two classes of preferred stock, both being entitled to 4 per cent, non- 
cumulative dividends, and both being subject to call at the par value. 
But the further proviso is made that the company shall have the 
right, at its own option, to convert the second preferred stock, one- 
half into first preferred and one-half into common stock, at par. 
The result of this latter provision is that the second preferred stock 
of the Reading Company sells higher than the first preferred, for 
while both receive the same amount of dividends, the possibility that 
the second preferred may some day be converted one-half into the 
more valuable 6 per cent, common stock gives the issue an added 
market value. 

Probably the most unique arrangement in the railroad preferred 
stock field is that which we find in the Rock Island Company. The 
preferred stock of this company is entitled to dividends at the rate 
of 5 per cent, up to 1916, and 6 per cent, thereafter, and the holders 
of the preferred issue have the right to elect a majority of the direc- 
tors of the company. Thus, the company is controlled at all times 
by the preferred stockholders, for although the common stock- 
holders have voting power, they can elect only a minority of the 
directors. 

In the industrial field it will generally be found that the preferred 

(547) 



66 The Annals of the American Academy 

stock provisions are more uniform than in the railroad field. Most 
of the industrial corporations have been formed within the past 
ten or fifteen years, and the preferred stock issues in nearly all 
cases represented at the time of formation the physical value of 
the plants consolidated, while the common stock generally repre- 
sented the capitalization of future profits or simple voting power. 
The great majority of the industrial preferred stocks carry prior right 
to 6 or 7 per cent, dividends, and in a number of cases the dividends 
are cumulative. Not many of the industrial preferred stocks are call- 
able by the company at any fixed price, and a large part of them rep- 
resent a first claim on assets, as there are few bond issues outstand- 
ing on the big industrial corporations as compared with the vast 
number of bonds which have been issued by the railroad systems. 

In public utility enterprises we find a smaller proportion of 
preferred stock issues than among the industrials and the railroads. 
At the same time, it is true that within the past half-dozen years 
a good many public utility preferred stock issues have been created 
and are nowadays being sold and quoted in the investment markets. 

In approaching the subject of stock investments, as distinguished 
from bond investments, the student should bear in mind certain 
fundamental facts which differentiate one class from the other. 
Briefly, a man who invests money in a bond issue is simply loaning 
his capital to the business, whereas he who invests in a stock is 
buying a part of the business. The ordinary stockholder in any 
corporate enterprise is in precisely the same position as the partner 
of a firm who is advancing a part of the capital. This is true 
whether the enterprise happens to be a steam railroad, an industrial 
or a public utility organization. The key to his position as a holder 
of the shares will always be the question of profits. 

On the other hand, when a person loans funds to a business 
undertaking, and receives some sort of security therefor, the primary 
fact in which he should be interested is not necessarily the amount 
of profits, but the value and character of the property which is 
given as security for the loan. The purchaser of an ordinary bond 
in any corporate undertaking is in exactly this position. As the 
stockholder is the owner, the bondholder is the loaner. 

But among these two general types of corporate securities there 
are many classes which partake more or less of the characteristics 
of both. In the characteristics of stocks the relationship to the 

(548) 



Preferred Stocks as Investments. 6j 

partnership principle is qualified in many instances and to great de- 
gree. Thus it is in the case of the stock which is preferred as to 
position. As indicated in the examples given above, the preference 
is often limited to a prior claim on the earning power or profits ; 
in other instances this covers also the tangible assets of the corpo- 
ration in the event of liquidation, and in still other cases it embraces 
also the voting power, the preferred stockholders sometimes having 
a voting privilege to the exclusion of all other stockholders and, at 
other times having no voting privileges whatever. 

It will be readily seen that an intelligent estimate of the invest- 
ment value of any preferred stock issue must involve the examina- 
tion of much more than the mere legal or technical characteristics. 
It must involve, first of all, an examination of the earning power 
of the property itself. All the legal verbiage in the world will not 
give a preferred stock real value if the income of the corporation 
itself is not sufficient to assure the dividend payments, and if the 
equity back of the issue is not large enough substantially to exceed 
the par value of the principal. The technical characteristics of 
both Chicago, Milwaukee and St. Paul preferred and of Minneapolis 
and St. Louis preferred are much the same; but while the former 
sells at over 160 per share, the latter is quoted at less than half this 
price. In the one case, the full dividend is being earned several 
times over, and has been paid for many years, while in the other 
the full dividend is not earned, and no margin of surplus is reported 
on the rate which is being disbursed. 

While a preferred stock is not a mortgage, and is in many ways 
essentially different from most bond issues, its investment position 
will often be affected by the same factors which affect the worth of 
a bond. For, like a bond, its income return is fixed, and no matter 
to what extent the net earnings of the property may grow, its divi- 
dend rate cannot be raised above the limit which the terms of its 
issue provide. A common stock, on the other hand, has a very direct 
interest in growing profits and in the expansion in the value of 
equities ; and conversely is apt to be more directly affected by de- 
clines in profits and shrinkage in equity values. For illustration, 
take the case of Union Pacific preferred as a representative pre- 
ferred stock issue and compare it with the common stock of the 
same company. The Union Pacific Railroad has shown practically 
steady growth in earning power and surplus for the entire ten years 

(549) 



68 The Annals of the American Academy 

past, and the property is worth at least double to-day what it was 
ten years ago. During this entire ten years the 4 per cent, preferred 
dividend has always been earned several times over, but its market 
value is no greater to-day than it was half a dozen years ago. On 
the other hand, very pronounced changes have taken place in both 
the dividends and market value of the common stock. The latter 
issue, not being limited as to dividends, has directly reflected the 
growth of the property in earning power, and is generally regarded 
as a more attractive investment to-day at 180 than it was at 60 ten 
years ago. 

So it will be seen that the worth of a standard preferred stock 
issue, which is assured of its dividends, may easily lag far behind 
the junior common issue in connection with the growth of the prop- 
erty in value and earning power. While the weaker preferred stock 
issues, which are surrounded with speculative uncertainties, may 
naturally hope for future growth in value as the property itself 
develops, this cannot be said of those issues which have already 
reached a high investment plane. For as soon as the latter plane 
is reached they become directly responsive to the same influences 
which affect the average well-secured bond issue. The price changes 
depend primarily on other factors than that of the earnings of the 
corporation. 

To illustrate this matter, let us consider the effect of general 
interest rates on securities of the higher investment type. Among 
the very best of the standard railroad bond issues are numbered 
Lake Shore 3>4s, Chicago, Milwaukee and St. Paul 4s, Baltimore 
and Ohio 3^2 s and Union Pacific first 4s. The margin of surplus in- 
come back of all these bonds is enormous, and in recent years has 
been far heavier than was the case eight or ten years ago. And 
yet we see all these bonds selling from 10 per cent, to 17 per cent, 
below the quotations of 1901 or 1902. While the security has ap- 
parently been growing, the actual market value has been declining 
in response to the upward trend in the world's money rate. And 
precisely the same effect is shown in the cases of those preferred 
stock issues which are far removed from speculative influences, and 
which are entirely assured of their dividend payments. 

In fact, there is a distinct divisional line running across the 
entire field of corporate investments which should always be clearly 
recognized by those who seek intelligent investment of funds. This 

(550) 



Preferred Stocks as Investments 69 

line does not follow the superficial division such as distinguishes a 
bond issue from a stock, or a preferred stock issue from a common 
stock. A bond, per se, is not necessarily any better or as good as 
a stock. Many preferred and common stocks are far superior in 
strength and value to many bond issues, and the mere fact that a 
bond is a mortgage, and that the holder thereof is legally entitled to 
a fixed return on the mortgage, will not of itself necessarily put him 
in a position of better security than that occupied by one who holds 
common or preferred stock in a corporation which is not a mort- 
gage and which has only a junior claim on income. 

The relative position of different securities in relation to the 
earning power results in dividing them into two great classes. These 
two classes may be briefly defined as follows : 

1. Securities which are beyond or above the influences of 
fluctuating earning power, and 

2. Securities, the values of which are almost exclusively af- 
fected by changes in earning power. 

Preferred stocks which have heavy equities back of them, and 
which are entirely assured of their dividends, are, with high-grade 
bond issues, in the first class. Common or ordinary stocks, pre- 
ferred stocks based on relatively small equities, and many junior or 
low-grade bond issues are of the second class. Even the very high- 
est grade common stocks are not in the first class. Standard Oil, 
selling at 700; Delaware, Lackawanna and Western, selling at 600, 
are in the second group, just as is Erie common, selling at 27, or 
Wabash common, selling at 20. Changes in earning power and net 
income are steadily reflected in the prices of the latter issues, while 
changes in prevailing money rates and general conditions are regu- 
larly reflected in the prices of the other group. 

It should, therefore, first of all be borne in mind that well- 
matured preferred stock issues possess little attractiveness from the 
speculative point of view. Like standard and tested bond issues, 
they are confined almost entirely to the investment field. But as in- 
vestments they offer in many cases inducements of an exceptional 
nature. Many investors persist in confining their commitments to 
bond issues, simply because they have a vague notion that a bond is 
necessarily a sounder investment than a stock. For this reason, 
bonds which are relatively no stronger than certain preferred stocks 
often sell at much higher prices. They are sought for by estates, 

(550 



yo The Annals of the American Academy 

institutions, savings banks and large investors to such an extent 
that often the average yield will be less than 4 per cent., whereas 
certain preferred stocks which really have greater inherent strength 
will be quoted on a basis to yield from 4^ to 5 per cent. For 
example, Baltimore and Ohio Southwestern $}4s will be quoted on 
a basis to yield but ^A per cent., when Atchison preferred will be 
selling at a price to yield nearly 5 per cent. For all practical pur- 
poses, Atchison preferred is fully as secure an investment as the 
bond issue mentioned, in spite of the fact that the bonds are a first 
mortgage on an important extension of the Baltimore and Ohio 
system. And in view of the difference in the income yield, the stock 
offers features of attractiveness that the bonds do not. 

If we turn to the field of industrial preferred stocks, we will 
find this prejudice against preferred issues still further accentuated. 
Many of the larger industrial corporations have now been in exist- 
ence for a decade or more. The permanence of their earning capac- 
ity has, therefore, been well demonstrated, and the records show in 
numerous cases steady expansion in earning power, in value of 
equities, and in general business stability. In more than one case 
the margin of safety above the preferred dividend requirement has 
been earned half a dozen times over for the entire decade. And 
yet we will find, as a rule, that these preferred issues are regularly 
quoted on a far lower investment plane than many of the railroad 
preferred issues which have a much lighter margin for protection, 
and decidedly under the prices of many semi-speculative railroad 
bonds whose future can by no means be regarded as entirely assured. 

A case in point is that of United States Steel preferred. Even 
the most drastic falling off in business could hardly interrupt the 
dividend payments on this issue. Eight years ago this could not have 
been asserted, but since that day the Steel Corporation has so 
enormously increased its equities in natural resources, developed its 
organization, and invested such remarkable sums in manufacturing 
plants, railroads and terminals, without expanding its liabilities to 
any important extent whatever, that the payment of 7 per cent, on 
its preferred stock issue to-day is almost as fully assured as the 
payment of a like dividend on a railroad stock like St. Paul pre- 
ferred. And yet, while St. Paul preferred is quoted on a 4 per cent, 
basis, Steel preferred still yields nearly 5^4 per cent. Many other 
parallel cases could be cited. 

(552) 



Preferred Stocks as Investments. 71 

To sum up the question of judging preferred stocks as invest- 
ments, let it first be said that each issue should be considered by 
itself in its relationship to the earning power of the corporation. If 
it is desired to speculate in future growth in profits, the lower grade 
preferred issues will be found frequently to offer inducements. If, 
however, true investment value is to be looked for, the investment 
should be confined to issues which are backed by available income 
equal to at least twice their dividend requirement. If they have 
shown results of this kind for a reasonable season, through a period 
of business depression or hard times, they can generally be regarded 
as in the class of safe investments, whether in the railroad or in- 
dustrial field. 



(553) 



THE DECLARATION AND YIELD OF STOCKHOLDERS' 

RIGHTS 



By B. B. Burgunder, 

Baltimore, Md. 



Everyone is aware of the great expansion of America's lead- 
ing railroad and industrial properties within the last fifteen years. 
During this time, much has been published concerning the unpar- 
alleled increase in mileage, earnings and profits, but few persons have 
definite knowledge of the exact return to a stockholder who has held 
capital stock for any length of time in these corporations. It will 
be the purpose of this article to show what would have been the 
yield to the stockholder who bought his shares at any given period 
in the open market. 

A "right" is a privilege issued by a corporation to its stock- 
holders to subscribe to its stock and occasionally to its bonds, at a 
price below the market quotation. This is what is meant when 
"rights" or "warrants" are referred to in our financial journals. 
But this is by no means the only benefit extended by corpora- 
tions to their stockholders, since where stock is issued "free" or in 
the form of a dividend, an even greater distribution is made. In 
such instances it is the company itself that pays the par value of the 
stock from its accumulated profits, and the issue amounts substan- 
tially to the capitalization of a previously earned surplus. Where 
the surplus is not as large as the dividend declared, the company 
is usually capitalizing its future earnings. For example, at the 
close of the fiscal year of 1904, the Atlantic Coast Line Railroad 
Company had a surplus of approximately $13,500,000. In Decem- 
ber, 1904, an extra dividend of twenty-five per cent (twenty per 
cent in stock and five per cent in four per cent certificates of 
the Atlantic Coast Line Company of Connecticut) was declared, 
reducing this surplus to about $4,500,000. Clearly, this was merely 
giving the stockholders what had been withheld from them in 
previous years. On the other hand, in December, 1868. the New 
York Central and Hudson River Railroad Company, with a capital 

(554) 



Declaration and Yield of Stockholders Rights J$ 

stock of $28,500,000 and a surplus of only $5,000,000, distributed to 
its stockholders gratis eighty per cent of their holdings, and again, 
in November, 1869, made another gift of twenty-seven per cent. At 
this period of its history, the earning capacity of the New York 
Central Railroad Company was enormous, and it was able to pay div- 
idends even upon this increase of stock. But as this distribution was 
made on the basis of its earnings, and not from an accumulated sur- 
plus, it was purely "water" and it has only been within the last fifteen 
years that the company's earnings, which have been turned back 
into the property, have been sufficient to change this capitalization 
from its status of "water" to that of real capital. 

That the method of raising capital and of distributing profits 
through the issue of new stock to its stockholders has been a very 
common practice is shown by the following table for a few of the 
many corporations which might be mentioned. 

No. of times "Rights" Owner of ioo Shares in 
Name of Company were issued 1880 would have at present 

American Telephone and Tele- 
graph Co 3 200 Common 

Baltimore and Ohio R. R. Co.. 4 209.3 " 

Canadian Pacific Ry. Co 5 269.57 " 

Chicago, Milwaukee and St. 

Paul Ry. Co 5 253.69 " and 101.48 pfd. 

Cleveland, Cincinnati, Chicago 

and St. Louis Ry. Co. ... 2 132 " 

Great Northern Ry. Co 8 693 pfd. and 495 ore certificates 

Illinois Central R. R. Co 8 363.32 Common 

New York Central and Hud- 
son River R. R. Co 5 245.2 " 

Pennsylvania R. R. Co 9 384.76 " 

Northern Central Ry. Co 3 225 " 

United Gas Improvement Co.. 8 55965 " 

In the foregoing table the first column gives the name of the 
company, the second states the number of times rights were issued 
since 1880, and the third shows the number of shares now held by 
an original holder of 100 shares who took advantage of all rights 
offered. Thus the American Telephone and Telegraph Company 
has doubled its outstanding stock; the Great Northern Railway 
Company has seven times as much preferred stock, not even taking 

(555) 



74 The Annals of the American Academy 

into account the enormous amount of ore certificates given to the 
stockholders, while the United Gas Improvement Company has 
nearly six times as much capital as it had in 1896. 

The term "right" has a very different meaning on the New 
York Stock Exchange from that given on the Philadelphia Ex- 
change. In the former city, a "right" means the privilege of one 
share to participate in the new issue. Thus an increase of twenty- 
five per cent in the capital stock gives each share of old stock the 
privilege to subscribe to one-quarter of a share of new stock, and 
it takes four old shares to purchase one new one. In New York, 
therefore, the holder of 100 shares owns 100 rights, which give 
him the option to buy twenty-five shares of new stock. In Phila- 
delphia, however, a right means the privilege to subscribe to one 
share of new stock. Consequently, in the case of an increase of 
twenty-five per cent in the capital stock, the holder of 100 shares 
of old stock owns twenty-five rights, which give him the option to 
buy twenty-five shares of the new issue. On that basis, rights are 
quoted at four times as much in Philadelphia as they are in New 
York. To take the last instance, where rights or warrants were sold 
in both markets, namely, in the last issue of the Pennsylvania Rail- 
road Company, the price of the rights in New York was $8 per 
$100 share, or really only $4 per $50 share. However, in Philadel- 
phia the quotation was $16 per $50 share, or exactly four times 
the price in New York. 

As is done when a dividend is declared, the books of the corpo- 
ration are closed when rights are issued, and all those whose names 
appear as stockholders upon the registry books of the company on 
the designated day are entitled to subscribe to the increased stock. 
Up to that day, the old stock sells with the subscription privilege 
attached and the stock is said to sell "rights on." On the day 
the books are closed, the privilege is no longer open to the stock- 
holders, but only to the holder of the rights or warrants that are 
issued by the company to its stockholders of record. On that day 
the stock and rights sell separately and the stock is said to sell "ex- 
rightsV 

It is very seldom that a corporation demands the entire pay- 
ment for a new issue at once. Generally it is spread over a long 
period of time, giving the holder a greater chance to procure the 

(556) 



Declaration and Yield of Stockholders' Rights 75 

money necessary to pay for the new stock. In March, 1906, the 
Atlantic Coast Line Railroad Company increased its capital by 
issuing ten per cent in common stock at par, payment to be made 
in two equal instalments: one on or before May 10, 1906; the other 
on or before September 10, 1906. In lieu of the interest on the 
instalments, the stockholders were entitled to the full dividend 
declared in November, 1906. In another case, the Great Northern 
Railway Company, in 1907, spread the payments for the new stock 
over a period of a year and a half and allowed interest upon each 
instalment. 

On the basis that all the stock offered is taken and added to 
the original holdings, the profit of the stockholder will vary as 
the price of the security fluctuates in the market. These changes 
in price are at times violent, and as will be shown later, have 
a marked effect upon the net profits of the stockholder. For 
this reason, to compute the returns fairly, quotations should be 
taken for a normal season — for last year, we may justly say around 
November 21, 1909. 

But another element enters into the question upon the same 
hypothesis, that all the offerings of new stock have been taken by 
the stockholder. The dividend return upon the stock issued is 
usually at variance with the current rate for money and the dif- 
ference between the two rates will be credited to the rights offered 
by the company. Suppose the holder of 100 shares of a seven per 
cent stock is offered the privilege of purchasing fifty new shares 
at par. To do this, he borrows money at the current rate of five 
per cent and adds the new stock to his original holdings. How- 
ever, the company maintains the dividend at seven per cent, and 
the difference of two per cent or $100 is equivalent to an increased 
dividend of one per cent on the first purchase of 100 shares. This 
one per cent, plus the seven per cent regular dividend, makes the real 
cash return eight per cent on the original 100 shares. If the person 
had not owned the original stock and thus secured the rights 
offered by the company, he could not have invested his money at 
any such rate, and it is only fair that the increased yield should be 
credited to the first purchase. Similarly, if the rate were only 
three per cent, instead of seven per cent, the difference would be 
a loss and would be a decrease upon the return of the original 100 

(557) 



J6 The Annals of the American Academy 

shares. Therefore upon an analysis of the return to a stockholder 
from rights over a given period of time, it will be found to include 
three subdivisions : 

1. The value of the new stock at the market quotation, less 
the amount of the subscription price. 

2. The fluctuation in the price of the original purchase. 

3. The cash yield. 

The method of permitting subscriptions to new stock at a 
price below the market quotations and of continuing the former 
dividend upon the entire amount issued, is an excellent plan for 
the distribution of large earnings to a corporation's stockholders. 
When a company desires to make permanent improvements, it 
can issue a long term bond at a rate below that paid by most 
standard stocks. This difference would go to swell the surplus 
earnings of the company and would eventually lead to a higher rate 
of dividend upon its stock capitalization. Instead the rate is kept 
comparatively low and the increased earnings are also divided. 
But it is not to be supposed that the benefits accrue only to the 
common stockholders. Indeed it is safe to say that the results are 
shared pretty generally by every security holder of the corporation. 
The presence of a large number of stock authorizations to-day point 
significantly to the fact that those companies are on the whole com- 
pelled by necessity to adopt this mode of raising capital. Money is 
dear, bond issues are difficult to float, and the average investor 
is unwilling to put any more money into construction, unless a little 
larger return, speculative though it may be in character, is apparent 
to him. Whenever such a state of affairs is general in the country, 
we have the corporations and particularly the railroads applying to 
their stockholders for aid. Such a flotation of securities immensely 
strengthens the safety of the bonds already issued. Dividends are 
not fixed charges and a road cannot be forced into a receivership 
because the rate must be lowered or abandoned during periods of 
business depression ; whereas if bonds had been issued and the 
coupons not paid, the penalty would have been inflicted. Thus in 
every way the security and stability of the company is strengthened 
by the increase of stock for the purposes of refunding or con- 
struction. 

The method of computing the value of rights is comparatively 

(558) 



Declaration and Yield of Stockholders' Rights yy 

simple. Let us take the last issue of new stock by the Pennsyl- 
vania Railroad Company, where the stockholders were allowed to 
subscribe to twenty-five per cent of their holdings at par. The 
common stock was at that time selling at $71.00 per share. 

100 shares at $71.00 per share $7,100 

25 shares at $50.00 per share 1,250 

Total cost of 125 shares $8,350 

Average cost of one share $66.80 

Deducting $66.80, the average cost per share from $71.00, the 
market quotation for the old stock, leaves $4.20 as the value of the 
right on each share of Pennsylvania Railroad stock. In New York, 
however, Pennsylvania shares sell on a percentage basis and the 
price of the right on the exchange was consequently doubled. As 
a matter of fact, the rights sold the next day for $8.25. The price 
of rights is usually a little below the ascertained value, due to the 
element of time, interest and arbitrage. 

This leads us to a very interesting practice. Many holders, 
being unable to pay the amount called for by the terms of the 
subscription, sell their rights to arbitrageurs. These arbitrageurs, 
immediately upon the purchase of these rights, sell an equivalent 
amount of full-paid stock, and after having paid the specified instal- 
ments, they make good their delivery with these new shares. Revert- 
ing again to our illustration of the Pennsylvania Railroad Company, 
suppose an arbitrageur bought 100 rights at $4.00 per right with the 
intention of paying the subscription price. This would give him 
twenty-five shares of new stock, costing in all $1,650, or $66 per 
share. However, when he bought the rights he sold "short" twenty- 
five shares of Pennsylvania in the open market at $66.50 per share. 
From now on his profits are practically assured him and he will 
make fifty cents per share, less the amount of the ordinary expenses. 

The greatest benefits from rights have been derived where the 
holder has held his stock for a considerable length of time and 
taken every subscription offered. If he sell his rights in the open 
market, when the next issue is made, he can only receive the fixed 
percentage upon his original holdings and thereby loses the real 
profit. It is needless to say that any increase of capitalization 

(559) 



78 



The Annals of the American Academy 



is based upon the total last issue and so, if the holder takes every 
subscription privilege that is offered, he will continually get rights 
upon rights. Take the Great Northern Railway Company for 
example. This road has made eight capital increases since 1893. 
If the holder of an original 100 shares had sold each right as it was 
offered, he would have parted with the privileges to 240 more shares 
of the preferred stock, together with 100 ore certificates. But, 
by holding the stock, and taking the rights upon rights, he would 
own to-day 693 shares and 495 ore certificates. This can be shown 
as follows: 



Original purchase in 1893 100 shares 

25 per cent increase in 1893 25 

Total shares in 1893 125 

100 per cent increase in 1898 125 

Total shares in 1898 250 

20 per cent increase in 1899 50 

Total shares in 1899 300 

10 per cent increase in 1900 30 

Total shares in 1900 330 

25 per cent increase in 1901 82.5 

Total shares in 1901 412.5 

20 per cent increase in 1905 82.5 " 

Total shares in 1005 495 

100 per cent ore certificates in 1906 495 

Total holdings in 1906 495 

and 495 ore certificates. 

40 per cent increase in 1907 198 

Total holdings in 1907 693 

and 495 ore certificates. 



ore certificates 
shares 



shares 



In addition to the greater increase in the amount of stock 
procured, in a railroad like the Great Northern, the subsequent 
rise in price of the stock made those new shares worth more than 
when issued. Of course this condition may be reversed and the 
stockholder may suffer considerably by the subsequent decline in 
the market value of the security. This is typified in many instances, 
particularly where the stock was bought during the boom times of 
1902 and 1906, as shown in the following table: 



(560) 



Declaration and Yield of Stocklwlders' Rights 79 

Company Date Price then Price Nov. a i, '09 

American Telephone & Telegraph Co 1902 180 144 

Atlantic Coast Line R. R. Co 1906 164 137.5 

Great Northern Ry. Co 1905 314 142 

New York Central & Hudson River R. R. 

Co 1902 160 135 

Pennsylvania R. R. Co 1901 80 66 

The only two important instances, where the stock suffered a 
loss from every right issued are the Missouri Pacific Railway Com- 
pany and the Cleveland, Cincinnati, Chicago and St. Louis Railway 
Company. These examples are indeed striking since not only is the 
original purchase of 100 shares below the price paid, but also the 
new issues secured through "rights" are selling considerably below 
the subscription value. 

The tables appended hereafter are all computed on the same 
plan and for purposes of explanation, the Baltimore and Ohio 
Railroad Company will serve as an example. 

In the table on page 80, the first column is for the date of the issue 
of rights, and opposite in the column headed "Quantity" is given the 
amount of the authorized increase of the new stock, together with 
the price at which the stock was issued. Straight across on the 
same line is the amount of stock held in the year marked at the 
top of that column. Thus, in 1900, the purchaser would have had 
n6 2 / 3 shares (100 shares original purchase plus i6 2 / 3 per cent 
increase) ; in 1901 — 140 shares (n6 2 / 3 shares plus 20 per cent in- 
crease) ; in 1902 — 182 shares (140 shares plus 30 per cent increase), 
and in 1906 — 209.3 shares (182 shares plus 15 per cent increase). 
Now, if instead of buying his first holding of 100 shares of stock in 
1900, he had purchased it in 1901, he would have missed the first 
privilege and consequently by the end of 1906, he would own fewer 
shares than if he had bought in 1900. To find the amount of 
stock held on any date, on the supposition that he purchased 
his 100 shares at a period after the rights of April, 1900, were 
issued and before the rights of December, 1901, appeared, look 
across the line marked December, 1901. At that time 120 shares 
were held (100 shares plus 20 per cent increase), in 1902 — 156 
shares; and in 1906 — 1794 shares. The same method can be 
adopted for any date of issue. 

(561) 



8o 



The Annals of the American Academy 





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Declaration and Yield of Stockholders' Riglits 8l 

The column headed "Price" contains the price the purchaser 
would have had to pay in the open market for the original stock, 
the day before it sold "ex-rights". Thus for the Baltimore and 
Ohio Railroad Company, in 1900, a share of common stock would 
have cost $89.50; in 1901 — $102; in 1902 — $110, and in 1906 — 
$108.25. 

The total cost of the stock is obtained by adding the cost of 
the original 100 shares of stock (as found in the "Price" column) to 
the total amount paid for the subscriptions ; whereas the "Value" 
is found by multiplying the amount of the securities held by the 
market value. In the case of the Baltimore and Ohio Railroad 
Company, the original purchase of 100 shares at $89.50 per share 
amounts to $8,950.00. The rights entitle the holder to 109.3 more 
shares at a total cost of $10,596.00. This additional cost of $10,- 
596.00 plus the original purchase price of $8,950.00 equals $19,- 
546.00, the amount in the "Cost" column. The "Value" of the 
stock is $24,383.00 (209.3 shares at the market price of November 
21, 1909, of $116.50 per share). The "Gain" or "Loss" is the ' 
difference between "Cost" and "Value." That amount, as has been 
pointed out before, will vary greatly with the market value of the 
securities. Baltimore and Ohio, as stated above, was taken at 
$116.50 per share, but suppose the panic price of 1907 of $75.50 
had been taken. The decrease of $41.00 a share would not only 
have wiped out the gain, but also would have left a substantial loss. 
It is, therefore, absolutely necessary to adopt a normal period of 
prices. 

This gain or loss must now be viewed as the amount of an 
annual dividend or assessment. Here it is necessary to adopt an 
arbitrary rate of interest extending over the entire period during 
which the stock was owned, and for this purpose a fair rate of 
five per cent has been assumed. This rate has been the average for 
long-term money on good security. 

The gain on Baltimore and Ohio from 1900 to November 21, 
1909, on the original 100 shares was $4,837.00. Spreading this 
$4,837.00 over the time the shares were owned, nine years, the 
annuity, with the interest at five per cent, is equal to 4.387 per 
cent a year upon the par value of the stock. In the meantime the 
average dividend rate paid in cash for the nine years was 4.591 

(563) 



82 The Annals of the American Academy 

per cent. This cash dividend of 4.591 per cent plus the 4.387 per 
cent gained through subscriptions and market appreciation equals 
8.978 per cent on the value of the original stock purchased in 1900. 
But it must be remembered that the stock cost only $89.50, whereas 
the total return of 8.978 per cent was based on par, so that the net 
yield on the purchase price of $89.50 is 10.031 per cent. In 1901 
the stock cost $102.00, the total return on par is 7.674 per cent, 
and the net yield on $102.00 is 7.523 per cent. The same process 
is followed for each date, and the result can always be found in 
the column headed "Net Yield on Cost Per cent." 

The method of finding the average dividend rate is interesting 
and shows the effect of increased holdings after the dividend rate 
has passed a certain point. The following is a table for each period 
of the Baltimore and Ohio Railroad Company : 

Div. Rate on par 1900 1901 190a 1906 

1900 2 2 

1901 4 4 4 

1902 4 3767 3-8 4 

1903 4 3-347 3-44 37 

1904 4 3-347 3-44 37 

1905 4-5 4-257 422 4-35 

1906 5-5 6.077 5-78 5-65 5-5 

1007 6 726 6.794 6.495 6.15 

1908 ....6 7.26 6.794 6.495 615 

41.315 38.268 34-390 17.80 

Average rate 4.591 4.784 4.913 5.933 

In the above table the money invested in the privileged sub- 
scriptions is supposed to be worth five per cent. This amount 
comes out of the annual cash dividend and the balance goes to the 
original ioo shares. For the purposes of illustration, take the 
column headed 1900. 

In 1900, the dividend rate was two per cent, and as the increased 
stock did not bear dividends until the following year, the net rate 
was two per cent. This has been indicated opposite the date 1900. 
The ^amount invested was $1,333.00 (i6 2 / 3 shares at $80.00 per 
share), so there must always be allowed $66.65 (fi ye P er cent on 
$1,333.00) interest on the subscription out of the cash dividend. 
The rate on the entire issue was raised in 1901 to four per cent, 

(564) 



Declaration and Yield of Stockholders' Rights 83 

or $466.65 on the n6 2 / 3 shares owned. Subtracting $66.65, interest 
on the new money invested from $466.65 cash dividend, leaves 
$400.00 net yield, or exactly four per cent on the par of the original 
purchase of 100 shares. In 1902, the rate is still four per cent, but 
23V3 (20 per cent on n6 2 / 3 shares) shares more have been pur- 
chased at par, reducing the net yield to 3.767 per cent. This figure 
is obtained as follows: 

16^3 shares at $80.00 per share $1,333-00 

23 l A shares at $100.00 per share 2,333.00 

Total investment $3,666.00 

Interest at five per cent 183.30 

The total cash dividend on 140 shares at four per cent equals 
$560.00. Net result ($560.00 — $183.30) is 3.767 per cent on par of 
original 100 shares. In 1902 there were bought forty-two more 
shares (30 per cent on 140 shares), at a cost of $4,200.00, bringing 
the total investment up to $7,866.00 ($4,200.00 plus $3,666.00). In- 
terest at five per cent on that sum in 1903 equals $393.30. Subtract- 
ing from $728.00, the total dividend at four per cent on 182 shares, 
leaves 3.347 per cent as the net yield. When in 1905, the rate was 
raised to four and five-tenths per cent, the net yield was increased by 
more than merely one-half per cent, as shown by the following 
calculations : 

4.5 per cent on 182 shares (amount held at present) $819.00 

Interest on subscription at 5 per cent 393-30 

Net yield $42570 

which is 4.257 per cent on par. 

In 1906 the rate was again raised, this time to five and five- 
tenths per cent. The net yield now rose to over six per cent. 

5.5 per cent on 182 shares $1,001.00 

Interest on subscriptions at 5 per cent 393-30 

Net yield • $607.70 

or 6.077 P er cent on P ar - 

By 1907, 27.3 more shares at par (fifteen per cent on 182 shares) 
are procured and $2,730.00 more cash is invested. This $2,730.00 
plus the $7,866.00 invested in previous subscriptions brings the 

(565) 



84 The Annals of the American Academy 

total money invested, in addition to the original purchase of 100 
shares, to $10,596. Interest on this sum at five per cent is $529.80; 
whereas the dividend rate is six per cent on 209.3 shares (182 shares 
plus 27.3 shares increase), or $1,255.80. The difference between 
the total cash dividend return of $1,255.80 and $529.80 (the interest 
allowed for the subscriptions) amounts to $726 or 7.26 per cent on 
par. Adding all the dividends and dividing by nine, the number of 
years since the purchase of the original 100 shares, we have 4.591 
per cent, or the average cash rate. If the stock had been bought 
in December, 1901, instead of April, 1900, the net cash dividend 
yield would have been 4.784 per cent ; if bought in October, 1902, 
it would have been 4.913 per cent; and if bought in April, 1906, 
it would have been 5.933 per cent. The same method is used for 
all the other companies. 

In the tables adjoining this article are given brief summaries of 
many of the largest corporations in the United States, which have 
made a practice of issuing rights to their stockholders. How profit- 
able these properties have proved, a glance at the final column headed 
"Net Yield on Cost Per cent" of each table will show. The results 
for the different years vary somewhat, and it would be hard to 
arrive at any definite conclusion. The results differ with each par- 
ticular corporation. 

The following table shows the net result computed according to 
the plans shown in the foregoing tables, for each company, if the 
stock had been bought when the first rights noted in the table were 
issued: 

Date of Net Yield 

Company purchase on cost 

American Telephone and Telegraph Company . . 1901 6.818 

Atlantic Coast Line Railroad Company 1902 7.622 

Baltimore and Ohio Railroad Company 1900 10.031 

Canadian Pacific Railway Company 1901 25.03 

Chicago, Burlington and Quincy Railroad Com- 
pany 1880 8.14 

Chicago, Milwaukee and St. Paul Railway Com- 

* pany 1882 7.326 

Chicago, Rock Island and Pacific Railway Com- 
pany 1880 6.924 

Cleveland, Cincinnati, Chicago and St. Louis Rail- 
way Company 1905 loss 3.446 

(566) 



Declaration and Yield of Stockholders' Rights 85 

Date of Net Yield 
Company purchase on cost 

Great Northern Railway Company 1893 33-H3 

Illinois Central Railroad Company 1887 7.809 

Missouri Pacific Railway Company 1886 .373 

New York Central Railroad Company 1893 7-526 

Pennsylvania Railroad Company 1887 6.194 

Northern Central Railroad Company 1900 10.691 

United Gas Improvement Company 1896 19-665 

Many other companies have followed the plan of giving large 
cash dividends in preference to the idea of distribution through 
increased stock capitalization. Among such corporations we have 
notable examples in the Union Pacific Railroad Company, Westing- 
house Air Brake Company, Standard Oil Company, and the Dela- 
ware, Lackawanna and Western Railroad Company. As to which 
method is the better, the managers of the various companies have 
their own opinions, but they amount to practically the same thing. 
What the policy will be in the future is a matter of conjecture, but 
it can safely be said that this method of raising additional money, 
namely, through increasing the capital stock, is finding more and 
more favor among the railroad directors, although the days when 
the shares were issued as extra dividends are probably past. A 
few of the former munificent distributions are shown below. 

Railroad Date Amount Price 

Atlantic Coast Line Company of Con- 
necticut 1001 100 free 

Atlantic Coast Line Company of Con- 
necticut 1901 100 free 

(4% certificates) 

Atlantic Coast Line R. R. Co 1004 25 free 

(20% stock and 5% in 4% ctf.) 

Chicago, Rock Island and Pacific R. R. 1880 100 free 
Delaware, Lackawanna and Western 

R. R. Co 1863 10 free 

Delaware, Lackawanna and Western 

R. R. Co 1864 70 free 

Delaware, Lackawanna and Western 

R. R. Co 1866 10 free 

Great Northern Ry. Co 1898 100 $60.00 

Great Northern Ry. Co 1006 100 free 

(ore certificates) 

(567) 



Amount 


Price 


IOO 


free 


80 


free 


27 


free 



86 The Annals of the American Academy 

Railroad Date 

Louisville and Nashville R. R. Co 1880 

New York Central and Hudson River 

R. R. Co 1868 

New York Central and Hudson River 

R. R. Co 1869 

The following tables are for some of the leading corporations 
of the United States, which have made a practice of issuing rights 
to their stockholders and are all computed in the same manner as 
illustrated in the case of the Baltimore and Ohio Railroad Company. 
It is expressly assumed that in all annuity and dividend calcula- 
tions, money is worth five per cent. For example of this, see pages 

87 to 96. 



(568) 



Declaration and Yield of Stockholders' Rights 



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CONVERTIBLE BONDS AND STOCKS 



By Montgomery Rollins, 
Author of "Money and Investments," "Convertible Securities," "Laws Regu- 
lating the Investment of Bank Funds," Boston, Mass. 



In concise language, a convertible security is a bond, stock or 
note which at the option of the holder, is exchangeable under certain 
conditions and at some time — present or future — for some other 
security issued — usually, but not always — by the same corporation. 
It has frequently the usual characteristics of a debenture bond ; that 
is, an ordinary promissory note of the issuing company, but nearly 
as many issues are secured by first mortgages upon all or parts of the 
properties. Where the form is that of the ordinary debenture, it 
does not carry the features of a well-secured bond in case of a de- 
fault, although it does rank ahead of the preferred stocks in its claim 
upon the earnings and assets. But where it is a direct first-mortgage 
obligation, covering all the company's property, it becomes the safest 
security such a corporation can give. A convertible bond has been 
characterized as a "call" upon the prosperity of the company, and 
thus upon that of the country. 

An interesting feature pertaining to these securities is that the 
investor seems ready to purchase them at prices which indicate a 
willingness to forego some degree of immediate value for the sake 
of expected future increment. 

It is difficult to frame any fixed definition that will embrace all 
the convertible issues, for the variety of securities that have been 
given the convertible privilege and likewise, the variety into which 
they are convertible, is very diversified. The privileges of conversion 
differ still more widely, there being but few issues which even ap- 
proximately coincide in this latter regard. Bonds which are con- 
vertible into stock predominate over any other class ; following which, 
there is but little to choose between notes convertible into bonds, and 
one class of stock convertible into another. The face value of what 
may be termed "live issues" of American corporations, carrying 
this exchange privilege, is the rather startling total of over one 
billion five hundred millions of dollars. 

(579) 



98 The Annals of the American Academy 

In the brevity of language which the banker is prone to adopt, 
these securities are called "convertibles," which term we shall find 
convenient to use occasionally in referring to them as a class. 

To say that there are fashions in the investment world is not, 
perhaps, a fair way to express it. Expedients may be the better 
word ; but that investment selections go in waves that may well be 
likened to the changes in fashions is a fact well known to all 
bankers. It is not likely to be disputed that swings of the pendu- 
lum toward this or that temporarily popular security are almost 
inevitably followed by too far a deviation from the perpendicu- 
lar line of conservatism, ending with an overdoing of the frenzy, and 
resulting, sometimes, in almost incalculable losses, and not infre- 
quently in general financial collapse. This has all been tested out 
in the world of finance, by the issuing of farm mortgages, or de- 
bentures based upon them as collateral, resulting in widespread 
disaster in the early oxTs. In the railroad world, in particular, 
unsatisfactory conditions arose from the unwise issuing of income, 
debenture and collateral trust securities. 

It must not be supposed that the extraordinary privileges so 
often accompanying convertible issues have been conferred out of 
pure altruism, because in many instances they have been justified 
upon economic grounds. Culminating with the experience referred 
to in the last paragraph and many others of a similar nature, cor- 
porations were sorely beset some years ago for a means of further 
financing their much-needed development work. The condition of 
mind of the investment public was such that an added zest of some 
nature was almost imperative, and the general issuing of convertible 
securities was the saving expedient which was generally and suc- 
cessfully adopted. Speculation was also running riot at the time, 
and the railroads appreciated the value of the speculative feature 
which the convertible plan offered. Therefore there was a rapidly 
increasing flood of these securities, the popularity of which has not 
yet begun to wane. 

The fact that railroads of such high standing as the Baltimore 
and Ohio, Union Pacific and Pennsylvania, by blazing the way with 
issues of fifteen million, one hundred million and fifty million, re- 
spectively, set their seal of approval upon the general adoption of 
the convertible feature as a way of inducing an already security 
satiated public to make further purchases, was one means of opening 

(580) 



Convertible Bonds and Stocks 99 

the flood gates to convertible issues. The average investor naturally 
inferred that such a plan of financiering must be sound, and so the 
ways were made easier for corporations of lesser standing to follow 
the tendency of the times. It was an opportune moment for the 
public to absorb these securities, because convertible bonds are likely 
to demonstrate their speculative attractiveness during a period of 
rapid expansion. Although the foregoing are the principal reasons 
for the readoption — the idea is not a new one — of this scheme of 
finance, yet there are others which should be mentioned : 

Some companies had in mind the reduction of their fixed inter- 
est charges, which an ultimate conversion into stock would bring 
about. At other times, the issuing of convertibles in lieu of stock 
has not been based upon the best interests from the company's 
financial standpoint, but rather to retain control of the stock, which 
control might have been jeopardized by an increased issue of the 
latter. That is to say, unless those in control felt disposed, and were 
financially able, to go into the market and purchase enough of the 
new issue to retain control, they could avoid all this by issuing a 
convertible bond, the convertibility of which could not be effected 
until some time well into the future. The issuing of a bond con- 
vertible at some future time into stock is nothing more nor less 
than the present sale of future stock, but the voting privilege would 
not accrue until after conversion. The fact that others were 
anxiously awaiting the opportunity to obtain control in the open 
market only increased the desire for this means of self-preservation. 

There have been many instances where railroads could not place 
their new issues of stock at anything like par, and also could not 
have sold plain bonds — debentures — bearing a low rate of interest, 
except at a prohibitive discount. But by issuing a bond bearing a 
rate of interest commensurate with the times, and carrying with it 
a chance to share in any future advance in the stock beyond the 
conversion price, successful financiering has been accomplished, 
which, otherwise, might have been impossible. 

To many, unfamiliar with the financial history of thirty or 
forty years ago, it may seem that the sudden outpouring of con- 
vertibles during the past ten years has been the first pioneering under 
that plan. But not so ; the beginning dates long before that, for 
we find an issue of this character back in the days of Commodore 
Vanderbilt who at the time of his interest in the Erie, caused that 

(580 



ioo The Annals of the American Academy 

railroad to issue, in 1868, ten millions in convertible bonds, to secure 
funds for double tracking. Perhaps the next important issue was 
in 1875, when railroad bonds were not so highly esteemed by in- 
vestors as in more recent days, at which time the Chicago, Milwaukee 
and St. Paul Railroad Company issued thirty-five millions of dol- 
lars in seven per cent, bonds; and in 1878 put out another issue, 
at the same rate, on the Iowa and Dakota extension. Then there 
were issues by such corporations as the Burlington and Mis- 
souri River, the Eastern in Massachusetts, and many others. There 
was, therefore, a period quite remote from the recent large offering 
of convertibles when to a considerable extent, recourse was had to 
the same idea. 

Referring again to the first St. Paul issue, it will be noted that 
it was brought out comparatively soon after the disastrous year of 
73, so well known to financial history. The section tributary to 
the road was in the early stages of development and therefore the 
convertible feature did not offer such reasonable surety of future 
enhancement, as appears to be the accompaniment nowadays of so 
many issues of this nature. It was a far different proposition to 
market a six per cent, convertible bond in 1908 on such a property 
as the New York, New Haven and Hartford Railroad, with the 
stock declaring eight per cent, in yearly dividends, to the placing 
of a similar obligation, in 1875, backed by a railroad property in 
the undeveloped West. It called for more faith on the part of the 
buyer in the latter instance, and there was a better excuse on the 
part of the railroad company for adopting the principle. But, 
nevertheless, it is reported that a St. Paul director argued that there 
was an injustice to the stockholders, since the bondholders had not 
only a reasonable assurance of their interest, in good times or bad, 
but, in addition thereto, the privilege of sharing in the stockholders' 
profits if the stock increased sufficiently in value. That reasoning 
is applicable to all such issues. 

This same idea that the bondholder has everything to gain and 
probably little to lose, by purchasing a convertible bond in prefer- 
ence to stock of the same corporation, sums up much of the good 
and the bad of this whole scheme. It is, the writer believes, fre- 
quently an injustice to the stockholder; not always a benefit to the 
corporation, besides generally proving too great a prize to have given 
the bondholder. The plan is not always, however, injurious to the 

(582) 



Convertible Bonds and Stocks 101 

stockholder, for there are times when if, instead of issuing con- 
vertibles, the capital stock should be largely increased, it might de- 
press the value of the existing stock to a point entailing a hardship 
upon the holders, whereas the placing of an issue of convertible 
bonds, especially where the convertible privilege does not begin to 
operate until some distant date, may not only enable the company 
to finance itself at a temporary lower rate of interest than the divi- 
dend rate upon its stock, but the fixed charge accompanying the con- 
vertible issue would, when the conversion privilege begins to operate, 
gradually decrease and possibly eventually disappear entirely. The 
slow conversion into stock of such an issue would not be apt 
to act seriously to the disadvantage of the other stock outstanding, 
and thus the holders would not suffer. 

In all this discussion, where it may be considered a disadvantage 
to the existing stockholders, we are going upon the assumption that 
the stock is at the time selling at more or less at a premium, and 
paying dividends in excess of the average normal fixed charge upon 
bonds. 

Enormous profits have been made on convertible securities, and, 
withal, as a class, up to the present time, the purchasers have been 
wonderfully well remunerated upon their investments ; although, 
in some cases, profits have been in reach, which were unwittingly 
allowed to escape. The possibility that this may occur demands vigi- 
lance at times on the part of investors in convertibles, all of which 
the following illustration will make clear : At the time the Chicago, 
Milwaukee and St. Paul Railroad Company's convertible fs f pre- 
viously referred to, approached maturity, they were worth about 170, 
if converted. It is remarkable how many failed to realize this, and, 
consequently, turned in their bonds for redemption at par and in- 
terest, thus losing a certain profit of seventy per cent. 

The convertible method sometimes has a peculiar effect upon 
the market value of a stock. We will imagine that the conversion 
period has been reached, and that the stock has advanced to a point 
where there is a decided profit to be obtained by converting the 
bonds and selling the stock received in return. This may bring 
about such a flood of conversion, and consequent offering of stock 
upon the market, that its price will be materially depressed. 

Another deterring influence, which an issue of convertible bonds 
may exercise upon an otherwise probable advance in price of a 

(583) 



102 The Annals of the American Academy 

company's already existing stock, is better explained by an illustra- 
tion. The Pennsylvania Railroad Company has outstanding a large 
amount of three and one-half per cent, bonds, convertible into stock 
paying dividends much in excess of that rate. Thus, as the bonds 
are converted, the stock issue may be largely increased, drawing 
more heavily upon the profits, the dividend rate being nearly double 
that of the fixed charge. It is believed that this factor has been a 
hindrance to the rise in value of a stock, for which there otherwise 
seems no very good reason for its remaining below the comparative 
price level of other securities. 

No one questions the public appreciation of these investments 
at the moment. Their popularity is, of course, due to the ingenious 
combination of safety and speculation with which they have been 
surrounded. The purchaser of a security of this class, when backed 
by a strong and prosperous corporation, has good reason to feel sure 
of the repayment of his interest and principal, for, surely, he un- 
derstands that they both rank ahead of any claims of the stock- 
holders, either for assets or dividends. But, besides this, if, during 
the period when conversion may be affected, there chances to be an 
enhancement in the market price of the stock into which the bonds 
are convertible, and to a point well above the exchangeable price, 
the bondholder will reap a proportionate good fortune. In actual 
practice, it will not be necessary to effect conversion in order to 
realize this profit, for the bonds follow fairly closely the fluctuations 
of the stock, so may be sold and the profit taken. This accounts 
for the seemingly unreasonably high quotations which are occa- 
sionally to be met with for some convertibles. It hardly appears 
consistent for a six per cent, bond, the obligation of a comparatively 
new mining company, to be priced in the market at 180, paying less 
than one per cent, yearly income — an unheard-of low rate of inter- 
est for a long-time investment — and yet such instances are to be en- 
countered. The selling price of the stock into which the bonds could 
be converted was such as to warrant a speculative rise in the price 
of the latter, far above their investment value. 

I It is not unusual for a security into which some other may be 
converted to be quoted so much below the conversion price that 
no immediate value is attached to the privilege. Under such cir- 
cumstances, the value of the convertible must be judged from the 
investment standpoint only. Such a condition was well illustrated 

(584) 



Convertible Bonds and Stocks 103 

at the time of the money market disturbance of 1907-08, when many 
issues of convertible bonds maintained a consistent level commensu- 
rate with market conditions and prices of other junior issues of the 
same corporations or other first-mortgage issues of similar worth 
not having the conversion right. The convertibles were not affected 
by a fall in the market values of the stocks for which they were 
exchangeable, even although the latter declined far below the con- 
verting points. 

No better illustration of the argument of the last two para- 
graphs can be cited than the action of the Union Pacific Railroad 
Company four per cent, convertible bonds, during the panic — so- 
called — referred to, when the common stock fell to the low point of 
100, which is seventy-five per cent, below the conversion price of the 
bonds. A sympathetic action on the part of the latter would have 
caused their decline to 57.14, a price not at all consistent with their 
real value. As a matter of history, they at no time fell below 78^ 
("flat"). 

It will be apparent that the price action of convertibles will be 
sympathetic with the securities into which conversion may be effected 
only as the quotations of the latter exceed the exchangeable prices, 
and that they do not fall to a point beneath the same merely on ac- 
count of such decline. There must be other factors existing, such 
as a disturbed money market, an impending trouble likely to affect 
the particular company, or the like. 

There are so many things, in connection with convertibles, 
which call for intelligent thought — and forethought — so that the 
holders of these investments may receive the maximum benefits 
obtainable therefrom, that a few of the more salient features 
will be enumerated. 

One important consideration is that of a bond, to illustrate, 
exchangeable at par for a given stock at 140. When the two 
securities are quoted at these respective prices, accrued interest 
and dividends disregarded, they are on a conversion equality, and 
nothing is to be gained by converting. If the stock advances, and 
the bonds remain stationary, conversion becomes profitable. But — 
and this is the point — suppose the stock remains stationary, and 
the bonds fall below par, conversion is, likewise, profitable. If the 
bonds are selling at ninety-five, the conversion equality of the stock 
falls to one hundred and thirty-three, so, if the latter is quoted 

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104 The Annals of the American Academy 

above that figure, it behooves one to convert, or to buy bonds and 
exchange for stock, if the prices are far enough apart to pay 
commissions. 

So far, we have made no particular distinction between issues 
in which the conversion privilege is already operative and those 
where it becomes effective at some future date. But there is a 
marked difference in the price action upon the two classes to be 
converted. Under the latter conditions, the sympathetic price con- 
trol of the stock upon the bonds is less marked the more distant the 
conversion period happens to begin. If not until ten or a dozen 
years, the price of the stock, however much above its exchangeable 
value, will but little influence that of the bonds ; the latter following 
more their strictly investment value. But, as the time shortens, the 
effect increases, until the conversion period begins, when the price 
of the two securities, if that of the stock is at or above the convert- 
ing point, must come together. As the conditions of convertibility 
approach fulfillment, public interest naturally increases, consequently 
giving a greater impetus to market activity. 

It not infrequently happens, however, when the conversion 
period is comparatively near, say three years or less, that the bonds 
may be purchased at prices not in keeping with a reasonably sure 
estimate of their future conversion value. Let us take the General 
Electric five per cent, convertibles, which can not be exchanged for 
stock before June i, 191 1; then on a basis of par for par. The 
stock is paying eight per cent, yearly dividends, whereas the bonds 
pay five. Valuing each on the basis of irredeemable securities — 
which is the only true way under the circumstances — we find that 
at the present (say, as of March 1, 1910) market value of the same 
— 142 for the bonds and 156 for the stock, and taking the stock as 
of a ''flat" price — the latter pays about 5.13 per cent., and the former 
3.52 per cent, yearly income, a difference of 1.61 per cent. From 
the time of computation to the date when conversion may begin 
(one year and three months) this would equal, to use even figures, 
two per cent. Consequently, the holder of the stock would be that 
much better off in interest return than the bondholder. The market 
difference in the prices, however, is fourteen per cent. Deducting 
the two per cent., there appears to be an inconsistency of twelve per 
cent, in the market quotations in favor of the bonds. 

Under this state of affairs, it would appear logical for the holder 

(586) 



Convertible Bonds and Stocks 105 

of the stock to sell the same and purchase bonds, providing, of 
course, it was, and is, his intention to retain his investment until 
the date of conversion, when, everything else being equal, the price 
of the two securities must become practically identical. The weak- 
ness in the deduction is that the bonds would not participate in any 
extra cash or stock dividends which might be declared upon the 
shares in the meantime. Accepting this as an improbability, and 
further basing one's faith that the eight per cent, dividend rate will 
not be reduced, there must be an actual profit of twelve per cent., 
based upon the foregoing quotations, by changing from stock to 
bonds, which may be obtained by patiently waiting fifteen months, in 
addition to an interest return of 5.13 per cent, upon the money in- 
vested. It is also clear that if it is safe to predict a quotation for the 
stock on June 1, 191 1, equal to or higher than 156, the same profit 
is to be had by buying the bonds now rather than the stock. 

We have just mentioned that the only true way to value a bond 
such as that under discussion, is as an irredeemable security. It 
is taken for granted that the reader will differentiate between the 
use of bond value tables for determining the yield from redeemable 
securities, and that of stock tables for those running in perpetuity. 
Some controversy has arisen as to how to treat convertible bonds 
from the "return upon the investment" standpoint. The circum- 
stances surrounding the various issues inject different conditions 
into the argument. Take, for example, the convertible bonds of 
the International Steam Pump Company, which, some time before 
being called for redemption, were selling at about 102, with the stock 
into which they were convertible quoted at only 48. As the con- 
version parity was 100, it is obvious that there was no profit to the 
holder in converting at that time, and, judging from the past and 
from the fact that the bonds matured in less than four years, none 
of them was likely to be converted. 

There appears to be but one way to value a security under these 
conditions, from the income standpoint, and that is by the net return, 
pure and simple, as obtained from ordinary bond value tables ; that 
is to say, a six per cent, bond having approximately four years to 
run, selling at about 102, would return annually, say five and three- 
eighths per cent. 

On the other hand, turn to the Union Pacific Railroad Com- 
pany's convertible 4's, quoted at no, and its first mortgage 4's, 

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io6 The Annals of the American Academy 

quoted at 101. There must be some reason for the difference in 
these prices, especially when the better secured bond is offered at 
a materially lower price than the inferior one. If, therefore, the 
first mortgage bonds are selling upon an investment basis, the con- 
vertibles must necessarily be selling well above their actual invest- 
ment value. In this latter case, it seems proper to assume that 
conversion into stock will sometime be effected ; therefore, the bonds 
should be regarded as a non-maturing stock investment. It must be 
this way, because the whole argument is based upon conversion 
eventually taking place, and the bond thus giving way to an irre- 
deemable stock. It makes a great difference whether the net yield 
of a four per cent, convertible bond selling at no be determined 
upon the basis of its having a definite maturity, and thus using the 
ordinary tables of bond values — which take into consideration a 
sinking fund to liquidate the premium paid — or whether the same 
is to be permanently exchanged for a stock, netting, at the con- 
version price, considerably better than five per cent, per annum. 

From all this, it is not difficult to arrive at the natural con- 
clusion that, where the stock of a property is selling above the con- 
version price, and paying dividends at a rate likely to be main- 
tained, the convertible bonds exchangeable therefor should be valued 
by the use of stock tables ; but where the stock for which a bond may 
be exchanged is selling at a point below the conversion price, and 
there seems no probability of its advancing beyond that price during 
the conversion period of the bond, the latter must be valued by bond 
value tables only ; that is, treated as redeemable. 

Corporations have been somewhat embarrassed in the issuing of 
convertible bonds, owing to the fact that it gave the holders a cer- 
tain call upon the stock not enjoyed by the shareholders of the com- 
pany. The general common law rule is that, in case of any new 
stock issues, the old stockholders shall be entitled to have the first 
opportunity to subscribe to the same, in proportion to their holdings, 
and at a price as favorable as that given to anybody else. In order 
to get around this point, certain legislation has been enacted in New 
York and a few other states, for the benefit of some companies in- 
corporated therein, which desired to issue convertible bonds ; but 
when an attempt was made by a company incorporated under New 
[ersey laws, to exercise the convertible plan, in the absence of existing 
legal permission so to do, trouble was encountered, for in the case of 

(588) 



Convertible Bonds and Stocks 107 

"Wall vs. Utah Copper Company," the court decided that the stock- 
holder could prevent such an issue of stock and bonds, unless his pro- 
portional share of the stock had first been offered to him. 

Although the court did not decide that the stock or bonds were 
invalidated after they had actually been issued without protest from 
the stockholders, it did give a decision of which the following is 
part, and applicable to this discussion : 

"A stockholder prior to the increase (in stock) has a right to a 
voice in the management, and to a share of the assets of the corpora- 
tion, on final dissolution, in the proportion that his holdings bear to 
the entire outstanding capital. These rights are materially affected 
by an increase of the capital stock, and such increase must, therefore, 
be made in a manner to enable him to become a purchaser of such a 
proportion of the increased capital stock as will preserve his rights 
to the same proportion in the assets on final liquidation as he orig- 
inally had, and also the same voice in the management of the cor- 
poration. Moreover, the immediate effect of an increase in the 
capital stock of a corporation, the value of which is above par, 
would be to depreciate the value of the original stock, unless the 
new capital is issued and sold at a valuation equal to that of the 
original issue. It is, therefore, manifest that if the holders of the 
original stock are not to purchase the entire new issue, it is to their 
interests that the increase of stock be issued, not at par, but at what 
will be its actual value, as near as the same may be ascertained." 
Where a bond is convertible into stock, and the latter is paying 
dividends — no conversion would be likely to take place otherwise — 
it is the almost universal rule that the company will, at the time of 
conversion, allow the holder the accrued interest upon the bond, 
and charge against him the accrued dividend on the stock, at the cur- 
rent dividend rate, the difference to be paid in cash by one party 
to the other. Sometimes the dividend and coupon dates coincide, 
so that no cash adjustment is necessary, providing conversion may 
be accomplished only upon such dates. If the dates agree, and like- 
wise the interest and dividend rates, no adjustment is required, 
whenever the conversion. Companies differ, however, as to fixing 
the time from which to compute the dividend ; some from the date 
when the last dividend was paid ; others from when it was declared, 
and so on. These points should always be made sure of. The "cur- 
rent rate" may also need defining. 

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108 The Annals of the American Academy 

This agreement as to a cash adjustment of the interest and 
dividend may appear in the trust deed — if any — in the face of the 
bond, in printed circulars of the companies, or may be verbal in- 
structions to the ones authorized to effect the conversion, such as 
trust companies. 

Where the conversion price of the stock does not permit of 
an even division into the face value of the bond, there will be a 
fractional share to be adjusted. If a one-thousand-dollar bond is 
exchangeable for stock at two hundred, we should have no such 
fraction, for five even shares would be received by the one convert- 
ing; but if exchangeable for stock at one hundred and forty, seven 
and one-eighth shares would be the approximate number. 

The settlement for this fractional share may be worked out 
in various ways, either by the company paying for it in cash, or by 
issuing convertible bond "scrip," so-called, which may be exchanged 
for stock, when presented in aggregate amounts equal to the con- 
version price of full shares. Some companies provide, however, 
that if it is not presented in just even amounts, other "scrip" will 
again be given for the excess, which is by far more equitable. The 
idea of giving either cash or "scrip" is simply to adjust the one frac- 
tional share, whatever the amount of bonds may be that is turned 
in at a single conversion. That is to say, neither of these methods 
of adjustment would permit of a cash or "scrip" payment equal to 
or in excess of the conversion price of one share of stock ; the inten- 
tion is always to give the maximum number of shares for which the 
par value of the bonds calls, adjusting the difference as above. No 
better chance illustration could be cited than that of the American 
Telephone and Telegraph Company. In the conversion of a one- 
thousand-dollar bond, seven shares of stock and sixty-three dollars 
and forty-eight cents cash are given ; but if forty-four thousand dol- 
lars in bonds are converted, three hundred and twenty-nine shares in 
stock and only forty cents in cash is the method of settlement. 

When the adjustment is made in "scrip," the price of the "scrip" 
should naturally fluctuate in the market with the stock, based upon 
its ^proportional amount to the conversion price of a full share of such 
stock. 

Some companies will only give stock in exchange for bonds 
when presented in amounts evenly divisible by the conversion price 
of a share. That is to say, in such an event fourteen thousand dol- 

(59o) 



Convertible Bonds and Stocks 109 

lars in bonds would have to be presented for a conversion into stock 
at one hundred and forty, unless bonds were in denominations of 
less than one thousand dollars. 

Also of great importance is the time when conversion may be 
accomplished. Often this privilege begins when the bonds are is- 
sued, and terminates only with their maturity or redemption. Again, 
it is set forward to some future date, and then exists for a limited 
period and so on. Ignorance upon this point has caused the loss of 
many substantial profits, which, otherwise, would have accrued to J 
the holders. 

It is not uncommon for the convertible right to be conferred 
upon an issue as an afterthought, neither the bonds nor the original 
trust deed showing any evidence of this privilege, the matter being 
covered in a supplemental agreement. 

Potential added security is sometimes given a convertible de- 
benture both for the better protection of the holder and easier mar- 
ketability of the issue. It is a proviso inserted that in the event of 
any mortgage indebtedness afterward being placed upon the prop- 
erty of the company, such mortgage shall likewise include the de- 
benture issue in question. 

There are but few convertible bond issues which do not carry 
a right of redemption prior to maturity. This is a matter that must 
not be lightly regarded, for a valuable conversion privilege may be 
lost to the holder on account thereof; or a bond which could be 
sold at a high premium, because of its value for conversion, may 
be called for payment at par or a small premium, and, unless the 
notice of call is discovered in time, the right to convert will lapse. 
As a rule, conversion may be effected up to, or about, the date 
named, for payment when a bond is called for redemption, or to 
within thirty days of such date. The right to redeem is very largely 
limited to interest dates, and after notice published in papers of 
general circulation in one or more named cities. 

To be forewarned may be preventive of loss, for many pos- 
sible profits have been allowed to pass beyond recall through igno- 
rance of the conditions surrounding some particular issue. A reg- 
istered bond generally safeguards the holder in the foregoing re- 
spects, as almost all trust deeds provide that a notice of intention 
to redeem must be mailed to every registered holder affected. 

In summing up, convertible securities combine elements of 

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no The Annals of the American Academy 

safety together with a very possible speculative profit, which, if the 
other usual safeguards in selecting investments are exercised, recom- 
mend them to one's serious consideration. The argument is largely 
in favor of the convertible attachment, everything else being equal, 
so far as it is likely to profit the investor. He may retain his posi- 
tion as creditor, to which he is entitled as a bondholder, §o long as 
the success of the enterprise, from the stockholder's point of view, 
is in doubt, and can then change from the position of a creditor to 
that of a shareholder, and thus part owner, when he becomes satis- 
fied that all is going well, and profits likely to increase in accord- 
ance therewith. The essence of all this has been well put by a finan- 
cial writer after this manner: "Convertibility is a kind of premium 
which is put on the future, but which relieves the lender of capital 
from assuming any of what might be called the marginal risks of 
growth." 



(592) 



BAROMETRIC INDICES OF THE CONDITION OF TRADE 



By Roger W. Babson, 

Editor "Babson's Reports on Fundamental Conditions," 
Wellesley Hills, Massachusetts. 



Statistics are divided into two classes, viz. : Comparative Sta- 
tistics and Fundamental Statistics. 

(i) Comparative Statistics as Indices 

So far as the merchant is concerned, comparative statistics 
relate to the weight, quality, age and method of manufacture of 
the merchandise in which he deals, together with such "trade fig- 
ures" as are published in the trade journals. 

From the investor's point of view, comparative statistics in- 
clude all particulars concerning the bonded debt, the earnings, and 
the general physical and financial condition of properties. Such 
statistics are very necessary to bankers and investors for compar- 
ing similar securities of different companies, or different securities 
of the same company. If such data is always up to date, such 
comparative statistics are very valuable for enabling one to select 
safe securities, either for permanent investment or for buying and 
selling again. As the largest and most successful stock exchange 
brokers, bond houses and mercantile firms, are already well sup- 
plied with comparative statistics and are obtaining excellent re- 
sults, we need not here discuss details concerning this class. It 
should be clearly understood, however, that such statistics are worth- 
less for determining the general course of the entire market or for 
serving as barometric indices of the condition of trade. 

Comparative statistics determine only actual values, enabling 
one to select safe securities or good merchandise, or to select the 
better of two or more companies' securities, or grades of mer- 
chandise. With the general market conditions remaining fixed, 
comparative statistics might be used for forecasting a rise or a 
decline ; but the general market is so seldom stable that comparative 
statistics cannot be depended upon to serve this purpose. They 
have been brought into disrepute at times because of the fact that 

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112 The Annals of the American Academy 

they are inadequate for analyzing general conditions. The market 
value of securities or merchandise may continually decline, and the 
actual value of the same increase, or vice versa. 

Whoever bases either purchases or sales solely upon earnings, 
physical conditions or other comparative statistics, with the idea 
of selling at a profit, will surely lose money. Such statistics may 
be used for selecting a safe investment or good merchandise, such 
as one may desire to hold permanently; but they are absolutely 
worthless for any other purpose. It is because this fact is not be- 
ing recognized by many firms, content with accumulating only com- 
parative statistics, that even with their elaborate statistical depart- 
ments, they are often on the losing side. In short, these statistics 
are for studying only surface conditions, or, more strictly speaking, 
past conditions, and, therefore, are useless for the purposes of our 
subject. 

(2) Fundamental Statistics as Indices 

Fundamental statistics relate to underlying conditions of the 
country and make it possible to forecast demand, supply, money con- 
ditions, etc. Fundamental statistics, although now used by only 
the most careful investors and merchants, are by far the most 
necessary and profitable. All financial history has consisted of 
distinct cycles, and, although of different durations, each cycle has 
consisted of four distinct periods; namely, 1. A Period of Pros- 
perity. 2. A Period of Decline. 3. A Period of Depression. 4. A 
Period of Improvement. 

Moreover, the laws of nature, commerce and industry determine 
that these cycles shall always consist of four distinct periods. The 
idea that prosperity can ever become permanent and will not be fol- 
lowed always by a business depression, or the idea that there can 
be an unlimited period of depression without succeeding general 
activity and high market prices, shows both ignorance of economics 
and utter inexperience in the business world. 

Theoretically, there should be a state where everybody is pros- 
perous and nobody overtrades, where the cost of living is reasonable, 
and the wage-earner has a margin to save for old age or establish a 
higher standard of comfort. It is true that we have never so far 
seen a condition so equable. The record of crises and booms can 
be carried back beyond the history of this country, and we can 

(594) 



Barometric Indices of the Condition of Trade 113 

start from the opening years of the eighteenth century, when Wil- 
liam of Orange was on the English throne. We can trace a com- 
mercial cycle once in five to ten years, and we can carry the study 
into the last century, knowing that European conditions were ex- 
actly reflected on this side of the Atlantic. 

"A state of equilibrium is apparently the most difficult of all 
for the world's trade to maintain*. We can theorize about crops, 
consumption, capital, labor and a score of other factors, but human 
nature is, after all, at once the least stable and the most un- 
changeable factor of them all. Business may be quietly good, but 
that ambition to which we probably owe also the greater part of the 
world's progress insists upon forcing it beyond reasonable capacity. 
The result is always the same. The result of years of saving is 
overconfidence, inflation, waste, conversion of floating wealth into 
fixed wealth, and, finally, collapse and panic. Here is the plain 
evidence of two hundred years, and, it may be assumed, at no risk 
that it is the evidence of all commercial systems. Joseph with his 
seven fat years and his seven lean years expressed nothing more. 

"What is not so readily realized is that a panic is followed by 
rapid recovery in stock prices, and one slower, but still relatively 
quick, in general business. This again is followed by an arrest 
in business where, contrary to assumptions just as hasty and ill- 
balanced as those which cause a bear attitude on a panic break, 
boom conditions are not immediately restored, nor does anything 
of the kind develop within a year or so of the crisis. The first 
recovery runs too far and has always run too far. What follows 
is not collapse, but dullness. It becomes imperative to make real 
savings in order to build up for the next boom in business." 

A list of twenty-five subjects about which merchants and in- 
vestors systematically collect, analyze and index statistics is given 
in Chapter IV of my book on Business Barometers. These are the 
subjects studied by the oldest, richest and most conservative financial 
and mercantile houses of the world, for determining which of the 
above-mentioned periods the country is experiencing or is about to 
enter at any given time. The use of fundamental statistics eliminates 
all guessing and uncertainty concerning mercantile and market move- 
ments and gives a barometric index of conditions of trade. 

The only requirement is to collect, tabulate and study the 
weekly and monthly figures as they are received. These plainly 

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114 The Annals of the American Academy 

show whether the general tendency of a market is upward or down- 
ward, and whether it is the time to buy, or to sell, or to do neither. 
As above stated, these fundamental statistics are even more im- 
portant than comparative statistics. Not only are the latter of little 
value, unless supplemented by these fundamental statistics, but ex- 
perience has shown that such investors as have confined their opera- 
tions to standard securities, and such merchants as have bought 
standard goods, have made fortunes for themselves and their cus- 
tomers by a study of these fundamental statistics exclusively. 

The ablest bankers, merchants and investors collect data under 
twelve headings, or on about twenty-five subjects, as follows : 

I. Building and Real Estate: (i) Including all new building 
and fire losses. 

II. Bank Clearings: (2) Total bank clearings. (3) Bank 
clearings excluding New York. 

III. Business Failures: (4) Failures, by number, amount of 
liabilities and percentage of failures to number of firms in business. 

IV. Labor Conditions: (5) Immigration figures. 

V. Money Conditions: (6) Money in circulation. (7) Comp- 
troller's reports. (8) Loans of the banks. (9) Cash held by the 
banks. (10) Deposits of banks. (11) Surplus reserve of banks. 

VI. Foreign Trade : (12) Imports. (13) Exports. (14) Bal- 
ance of trade. 

VII. Gold Movements: (15) Gold exports and imports. (16) 
Domestic and foreign exchange and money rates. 

VIII. Commodity Prices: (17) Production of gold. (18) 
Commodity prices. 

IX. Investment Market: (19) Stock exchange transactions. 
(20) New securities. 

X. Condition of Crops: (21) Crop conditions and production of 
other commodities. 

XL Railroad Earnings: (22) Gross and net earnings. (23) 
Idle car figures. (24) Miscellaneous. 

XII. Social Conditions: (25) Political factors. 
' These twelve main subjects have by custom come to be known 
among merchants as the twelve barometric indices of the condition 
of trade, and may be briefly described as follows: 

I. The number of miles of new railroad constructed, together 
with figures on building statistics, gives a clew to what new con- 

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Barometric Indices of the Condition of Trade 115 

struction is going on throughout the country. The exactness with 
which business conditions could have been foretold in the past 
by such figures is truly marvelous. It may be stated also that as 
iron is one of the first commodities to fall in price, and one of the 
first to rise, all merchants watch the price of iron as an index of 
the amount of steel in demand, and, therefore, as a barometer of 
actual conditions. 

II. Bank clearings are an extremely good barometer of present 
conditions, and are watched with keen interest by all successful mer- 
chants and manufacturers. Many large corporations each week 
compare the changes in their total sales with the changes in the 
total bank clearings of the country. If they find that bank clear- 
ings continually show an increase, while their sales remain fixed, 
they immediately try to discover the reason therefor. Moreover, 
some firms divide the country into sections, and compare by sec- 
tions their sales with the bank clearings for said sections, thus hav- 
ing a check on the work of each individual sales office. 

III. Failures, both in number and amount, are especially good 
barometers of the conditions of trade. By ascertaining each month 
the average number of concerns in active business, and the number 
that have failed, the percentage of failures may be readily deter- 
mined. Contrary to the ordinary impression, too few failures fore- 
tell disaster and panic. 

IV. Figures on immigration are carefully studied by manu- 
facturers as indicative of the conditions of the labor market. Thou- 
sands of immigrants arriving at Ellis Island indicate good surface 
conditions, with high prices for labor; but too large immigration 
figures foretell a change in conditions, followed by a period of de- 
pression. On the other hand, when large numbers of steerage pas- 
sengers are leaving the country, and the incoming steerage is re- 
duced, business is in a state of depression, although when the tide 
turns and immigrants again begin to arrive, it is a sign that con- 
ditions are again improving. 

V. Money is the basis of all trade, and is, therefore, probably 
the most sensitive of all barometers. Money is the representative 
in value of all things traded in, and the scarcity of it seriously 
hampers the manufacturer and the merchant. Low money rates 
usually indicate poor present conditions, but tending toward im- 
proved business ; while high rates usually signify very prosperous 

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n6 The Annals of the American Academy 

present conditions, but often foretell a coming panic. The active 
merchant, moreover, not only studies the money rates of this coun- 
try, but also the average of the bank rates of England, France and 
Germany. Each Thursday the Bank of England publishes a state- 
ment, and makes an announcement as to the rates of discount at 
which it will handle first-class paper until further notice. This 
practically fixes the discount rate throughout Great Britain, and a 
continued increase or decrease of the rate in England is sure to be 
followed eventually by a similar movement in this country. 

VI. Figures on foreign trade are also of great value. The 
foreign trade of the country bears the same relation to the nation, as 
a whole, as the income and expense of an individual bear to the 
financial condition of the said individual. A man who for any 
length of time spends more money than he receives, is sure to 
eventually have trouble, and it is the same with the nation. More- 
over, as the financial prosperity of the individual is almost in 
direct proportion to his net income, so the prosperity of a nation 
very largely depends upon the volume of its foreign trade. 

VII. Monthly gold movements are also important for study 
in forecasting money rates, although, like idle car figures, they 
are of little value after the actual annual figures are published. 

VIII. The subject of commodity prices is very important. The 
amount of money required to carry on a definite volume of business 
becomes very much greater as business increases. For this reason, 
bankers very carefully watch commodity prices, knowing that high 
money rates invariably follow a marked increase in commodity 
prices. 

IX. The number of transactions and the prices of stocks on 
the New York Stock Exchange are also interesting to merchants, 
as well as to investors. The way money is made on the New York 
Stock Exchange is by anticipating price changes. The leading op- 
erators have statisticians continually studying fundamental condi- 
tions, in order to forecast future conditions and base their pur- 
chases and sales on the information obtained. Therefore, a slowly 
sagging market usually means that the ablest speculators expect in 
the near future a decline in general business; while a slowly rising 
market usually means that prosperous business conditions may be 
expected, unless the decline or rise is artificial and caused by manipu- 
lation. In fact, if it were not for manipulation, merchants could 

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Barometric Indices of the Condition of Trade 117 

almost rely on the stock market alone as a barometer, and let these 
large market operators stand the expense of collecting the data neces- 
sary for determining conditions. Unfortunately, however, it is im- 
possible to distinguish between artificial movements and natural 
movements by studying the stock market alone, therefore, although 
bankers and merchants may watch the stock market as one of the 
barometers, they should give to it only a fair and proportional 
amount of weight. 

X. Of all statistics published by the government, the most im- 
portant to the merchant are crop reports. Most of the government 
figures refer to what has happened in the past, and many of these 
figures are published a year or more after the events have hap- 
pened. In the case of the crops, however, the government actually 
forecasts. Therefore, all crop statistics are especially valuable to 
manufacturers and merchants. 

The crops are the mainstay of America, and approximately 
one-half of our population is directly dependent upon agriculture. 
Crop conditions form the basis of James J. Hill's predictions and 
business ventures, and Mr. Hill, by the way, is a great student of 
fundamental statistics. The principal crops, grain and cotton, have a 
tremendous influence upon our wealth. Many industries and mer- 
cantile firms are absolutely dependent on the crops, and commodity 
prices are always more or less dependent thereon. The grain and 
cotton reports issued by the government are watched with great 
interest, and manufacturers and merchants even watch the weather 
reports throughout the West, the progress of the "green-bug," the 
condition of the crops in the Argentine Republic, Russia and other 
countries. Normal crops are usually followed by a year of uncer- 
tain conditions. 

XI. Railroad earnings are extremely instructive and are used 
by some merchants in preference to many of the above subjects. 
Practically all manufactured goods, and even supplies in the local 
retail stores, are shipped by railroads; therefore, a weekly record 
of freight which the railroads are carrying serves as a barometer of 
the business of all the farmers, manufacturers and merchants of 
the country. Moreover, the steel companies, the car and the locomo- 
tive builders, the coal industry and many other industries are directly 
dependent on the railroads for their prosperity. Therefore, all mer- 
chants watch railroad earnings and new mileage constructed, and 

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n8 The Annals of the American Academy 

always reduce or increase their stock of goods in accordance with 
what these reports show. 

XII. Political factors. Trade is always dependent upon the 
wise conduct of our national government. War clouds, even al- 
though at first not involving our nation, strongly affect all com- 
modity and investment prices. Of course, all are not affected in 
the same way, as a war scare increases the prices of some com- 
modities and reduces the prices of others; but all are affected in 
some way and to some extent. Even the President's message, and 
especially tariff discussion and the approach of a presidential elec- 
tion, greatly affect prices and trade. 

To conclude, each of these twelve subjects is intimately bound 
up with what are known as "swings," during which all prices change 
from "high" to "low" and the reverse. As heretofore stated, all 
financial and commercial trade during the past two hundred years 
has been divided into distinct cycles, and each cycle consists of 
four periods : a period of prosperity, a period of decline, a period 
of depression and a period of improvement. Each period is ac- 
companied by distinct changes in the prices of stocks, labor and 
commodities, and, by comparison with similar periods in previous 
cycles, it is possible with a degree of certainty to determine at about 
what period in one of these "swings" we happen to be. If the 
swing is far out over the perpendicular, we are sure that the pendu- 
lum must swing back of the center as far as it swung forward, 
because action and reaction are always equal where the "area" con- 
sumed is considered. 

No country, however, can be prosperous unless it is progressive. 
No nation can stand still ; it must go either forward or backward. 
The normal demands of our country for new construction must 
show an increase each year to have conditions even remain con- 
stant. There must be a distinct increase in order to keep the vast 
number of our new citizens busy. Therefore, in comparing the 
present with the past, equal or slightly greater figures do not neces- 
sarily mean better conditions ; but in many instances may mean an 
actual falling off. This is very important and must be remem- 
bered when estimating an area to use for comparative purposes in 
connection with the composite plot which will be described later. 

Some firms, when interpreting figures on each of the various 
subjects for surface conditions, prefer each month to determine 

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Barometric Indices of the Condition of Trade 119 

what the proper normal figure should be for each of these subjects, 
and note the relation between the actual figures for surface condi- 
tions and these normal figures. The normal figure on any one sub- 
ject is obtained by plotting the yearly figures on that subject for a 
period of ten or twenty years, and by drawing on that plot a line 
showing the average trend for the entire period. Firms using this 
system obtain the normal figure for any future time, assuming that 
the general direction of this normal line will continue the same. 
Moreover, in the case of some subjects, it is often clearer to plot 
the relation of present figures to a ten-year average, rather than 
the actual figures. This is especially true with plotting commodity 
prices and other figures which show only a slight variation with 
seasonal changes. 

The amount of money which can be made by the study of such 
statistics is limited only by the original capital and the number of 
years the study is continued. Comparative statistics treat of com- 
parative conditions, and are used for selecting securities and com- 
modities which are absolutely safe and which have the greatest pros- 
pect of increase in market value under fixed market conditions. 
Fundamental statistics treat of underlying conditions and are em- 
ployed as barometric indices for determining these general market 
conditions and whether or not it is wise to purchase or to sell, or 
to do neither. Investors use their indices in order to purchase se- 
curities only when they are low, holding them for from two to four 
years until they are high, and then selling and depositing in a bank 
the proceeds received therefrom. After said sale, they leave the 
money on deposit for from two to four years, until the same se- 
curities again sell low, when they withdraw the money and again 
purchase them or other high-grade securities. 1 

Many such investors triple their money about every five years, 
with very little risk and with little trouble. By a study of funda- 
mental statistics some individuals, with equally little risk and without 
any marginal purchases, but by purchasing outright, high-grade, 
dividend-paying securities, have turned an investment of $5,000 to 
$250,000 in about twenty years. When one realizes the meaning 

1 If this withdrawal at the time of a panic meant the hoarding- of 
money, taking the money from circulation, we should not recommend any 
such course. Instead, the money is only withdrawn from one bank and 
deposited in another, probably being used to liquidate some loan." 

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120 The Annals of the American Academy 

of this — that an investment of $20,000 grows to $1,000,000 within 
twenty years — the value of fundamental statistics is apparent. 

Merchants who never buy or sell securities use this data with 
equal profit. Fundamental statistics clearly show the merchant when 
to buy and increase his stock of goods, and when to cut prices and 
reduce his stock. They also enable the merchants to forecast money 
conditions in order that they may intelligently decide whether to 
borrow the money necessary to allow customers further credit, or to 
reduce their own loans and the indebtedness of customers. More- 
over, at all times these figures show a merchant the conditions of 
business throughout the country, so that he always knows whether 
the growth or contraction of his business is proportional to that 
of his competitors. 

Upon careful thought it is evident that the fortunes of Ameri- 
can merchant princes must have been created by a study of these 
barometric indices, rather than by simple selling to the trade at a 
nominal profit. Therefore, not only does the proper use of funda- 
mental statistics insure a merchant against losses, but their use 
should be almost as profitable to him as to the investor, enabling him 
to double and triple his capital every few years. 

The Theory Involved 

Up to the present point this paper has outlined what is meant 
by fundamental statistics and the great value of such statistics to 
bankers, merchants and investors. The purpose is to show why the 
subjects mentioned are studied and what evidence we have for using 
the laws upon which our barometric indices are based. 

That there have always been periods of depression and periods 
of prosperity and intermediate periods, every one already knows. 
There is absolutely no dispute regarding this first point, but opinions 
distinctly differ as to the duration of these periods. It is the general 
impression that the great major cycles are of about twenty years' 
duration, and the minor cycles extend over about ten years, with 
possibly intermediate cycles of about five years' duration. Prob- 
ably the most interesting work on this subject was done by Samuel 
Benner from 1875 to 1884, who formulated a most elaborate system 
of charts and who, without doubt, clearly foretold the panics of 
1884 and 1893, and the prosperous years intervening. Many other 
men have devised other charts and theories — some based on sup- 

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Barometric Indices of the Condition of Trade 121 

posed economics and others based on superstition — but all have been 
found to fail and have passed into oblivion. 

Upon careful examination, however, all these charts and theo- 
ries have two great defects, and it is only because the laws which we 
discuss here eliminate these two defects that this paper deserves 
attention. 

Fraction Equals Action 

The first defect in the old theory of Benner and other writers 
consisted in the fact that they based their calculations on either 
time or activity, separately, instead of on their product. There is 
no law in physics or nature stating that any action or any reaction 
must come with any definite regularity. The law upon whirh me- 
chanics, medicine and other sciences are based is that "action and 
reaction are equal." This is absolutely true ; but when a mechanic 
or physician or any one else attempts to go one step further, he 
fails completely. Action and reaction are equal ; but of what "re- 
action" consists, there is no known law to determine. For instance, 
we may say that certain reaction amounts to one hundred foot- 
pounds. But whether the body weighs one hundred pounds and is 
moved one foot, or weighs only one pound and is moved one hun- 
dred feet, we have no way of knowing. 

In other words, to say that a period of prosperity or a period of 
depression will last any given time — irrespective of the business 
activity of the country during such time — is contrary to all basic 
law. Yet upon such reasoning most of our predecessors have 
worked, while the others believed that a change in conditions comes 
when figures for pig iron, bank clearings or commodity prices reach 
a certain point. They entirely ignore the product of time and 
activity. Yet only by multiplying one by the other can the true 
"reaction" be ascertained. Time may be compared to space, and 
activity may be compared to weight, and their product to space 
multiplied by weight or "foot-pounds." 

For this reason, when studying a composite plot like the an- 
nexed, which is based on all the twelve main subjects heretofore 
mentioned, able bankers and merchants to-day do not study height 
nor length, but simply area. Or, to refer again to this composite 
plot, such men believe that the shaded areas above the average line 
must approximately equal in area the shaded areas below the aver- 

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122 



The Annals of the American Academy 




Barometric Indices of the Condition of Trade 123 

age line. Therefore, if the country is enjoying a condition of only 
medium activity, prosperous conditions may be expected to extend 
over a longer time than if tremendous prosperity now abounded, and 
vice versa. Leading bankers, merchants and investors, therefore, 
collect data on all these subjects in order to keep always informed as 
to the area being consumed, which is the first and most important 
step in forecasting future mercantile, monetary and investment con- 
ditions. 

All Subjects Must Be Considered 

The second great error heretofore made by these economists 
consisted in the fact that each man seemed to focus his attention on 
only one or two subjects, instead of making a composite interpreta- 
tion of all. Some would study bank clearings, some foreign trade, 
others gold movements, and so on, believing that, as the figures on 
their especial subject or subjects changed, it was possible to fore- 
cast future conditions. Many still believe it is possible to follow 
certain other subjects in this way ; but all such systems are absolutely 
mistaken. No one of these subjects, when studied independently, 
serves to foretell the great changes in conditions which have oc- 
curred since i860. Some of the subjects seem to work out better 
than others ; but all of them entirely fail to give proper warning in 
some one instance. 

For illustration, gold movements formerly were used as one 
of the very best barometers of future conditions. During heavy 
imports of gold, such as occurred in 1878-1882, the United States 
enjoyed unparalleled prosperity, and after said imports declined, and 
the exports of gold exceeded the imports, as in 1882- 1883, there 
followed the panic of 1884. This same rule worked most admirably 
in forecasting the prosperous times of 1888- 1890, again the panic of 
1893, an d again the prosperous times of 1898- 1902. The rule, how- 
ever, did not work well in forecasting the panic of 1903, nor the 
prosperous years following; while the heaviest imports of gold the 
United States ever enjoyed occurred just preceding the panic of 
1907. Of course, the reason for these huge imports in 1906-1907 is 
now well understood ; but any one who in 1906 studied the bare 
figures, without knowing that such importations were artificial, would 
have been justified in. expecting 1907- 1908 to be years of great pros- 
perity. On the other hand, such an error would not have been 

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124 The Annals of the American Academy 

possible if a study had simultaneously been made of the other 
leading subjects. 

In short, a study of all these subjects reveals the fact that no 
one of them can always be depended upon; but that in the case of 
every panic, or other change in business conditions, some one or 
more of the subjects fail to give the necessary warning. On the 
other hand, such study has shown that there has not been a single 
case when a change in conditions has not been fully and plainly fore- 
told by a majority of all the subjects. If one will study the figures 
or plots which treat of the twelve or more most important of sub- 
jects, the following facts are self-evident: 

Four general rules can be worked out for each subject — one 
rule for each of the four periods of prosperity, decline, depression 
and improvement, respectively. These rules are given in detail for 
each of the twenty-five subjects, in Chapters VI, VII and VIII of 
my book, Business Barometers. The basis of these rules is that 
such very high figures as appear during very prosperous conditions 
foretell a panic or period of decline ; when the high point is passed 
and the plot points downward, as occurs during a decline, a period 
of depression may be expected ; very low figures, such as appear 
during a depression, foretell a period of improvement; and when 
the low point is passed and the plots turn upward, as occurs during 
a period of improvement, prosperous conditions again may be ex- 
pected. 

Although bankers and merchants may often rely upon what 
one of these subjects signifies, yet it is never safe to do so. On the 
other hand, it is safe always to depend upon what the majority 
of the subjects signify. That is, if during prosperous times we 
are studying twenty-five subjects, and more than fourteen signify 
either "no further improvement" or "caution," then we may begin 
to prepare for trouble which is sure to follow. Conversely, if during 
a business depression fourteen of the twenty-five subjects foretell 
"improvement," then improvement will surely follow. 

Final Deduction 

Therefore, after reducing all figures to a single composite plot, 
in order to ascertain the "area" above or below the average line, 
the figures are again referred to and interpreted as to underlying 
conditions in accordance with the laws just outlined, which laws 

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Barometric Indices of the Condition of Trade 125 

are self-evident from a study of the charts and figures. If both the 
composite plot and the interpretations foretell the same change, it 
may be expected to come to pass; while if both do not foretell the 
same change, one may assume that at a given moment conditions 
are uncertain, although a week or so later this uncertainty may 
not exist. This practically completes the work, although as a fur- 
ther check, it is interesting to look back over previous history and 
ascertain what changes, after such conditions as exist to-day, have 
followed in the past. This is accomplished by referring to points in 
the various past business cycles when (1) the same area above or 
below the average line existed as exists to-day; and (2) when a 
majority of the twenty-five subjects foretold according to the above 
rules the same that they foretell to-day. 

In short, the study of these barometric indices for studying 
trade conditions consists simply in ascertaining present surface con- 
ditions and interpreting them with the view of forecasting future 
conditions. In many ways the work resembles the work of a physi- 
cian. A man goes to his physician to be examined for life insur- 
ance and the physician first obtains a knowledge of the man's present 
condition by an examination of his pulse, temperature, kidneys, 
respiration, etc. The physician secondly refers to his medical library 
and ascertains what usually follows when a man's heart, kidneys, 
lungs, etc., are in such a condition as the patient's, and thus inter- 
prets these symptoms. The physician thirdly combines his knowl- 
edge of the man, his present condition, his mode of life and his 
symptoms, and forecasts for the insurance company the length of 
time — in his opinion, based on previous history — the man has to 
live. That action and reaction are equal, and that history usually 
repeats itself, is the foundation of the science of medicine, and 
upon such a foundation the great business of life insurance is ab- 
solutely dependent. The person who believes there is nothing to the 
science of medicine, and that any average man knows as much and 
can advise as well about his bodily condition as a highly trained 
physician, is not expected to be a believer in fundamental statistics. 
On the other hand, one who does have faith in the knowledge and 
advice of an able physician should give this subject most careful 
respect and attention. 



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126 The Annals of the American Academy 

The Mechanical Work 

In the first portion of this article we studied the meaning of 
barometric indices and their use ; this was followed by a study of 
the theory underlying the work and the reasons why indices can be 
depended upon. At this point space may be given to explaining 
the mechanical work of compiling and reducing these figures to one 
single "summary barometer index figure" such as is the basis of the 
above-mentioned composite plot. 

In approaching this part of the work, although other methods 
may seem sufficient, the need of direct and definite results leads 
the student to seek a systematic, comprehensive and uniform prac- 
tice, so that a basis of comparison, from period to period, may be 
established at the outset. The course usually followed by the 
leading bankers, merchants and investors is to collect data, covering 
a long period of years, and relating to the twenty-five or more 
subjects compiled under the twelve headings previously mentioned. 

The figures on these twenty-five subjects are kept upon large 
desk sheets, which are usually divided into twelve sections. It 
takes many years to accumulate these figures, as they represent slow 
and careful research. They are the foundation of the entire work, 
and it is impossible to make practical use of fundamental statistics 
as a barometric index of the condition of trade excepting in con- 
nection with these tables for preceding years and months. 

The twelve headings already described are arranged so they 
may be grouped and classified under the three following divisions. 
These divisions are purely arbitrary, as every subject affects in 
some manner each of the three divisions : 

Corporations and merchants especially study: 

New building and iron production. 

Bank clearings. 

Business failures. 

Labor conditions. 

Earnings, crops, politics, etc. 

Bankers and others loaning money especially study: 
Money conditions. 
Foreign trade. 

Gold movements and foreign money rates. 
Commodity prices. 
Clearings, failures, politics, etc. 

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Barometric Indices of the Condition of Trade 127 

Stock exchange firms, bond houses and investors especially 
study: 

Prices and transactions 

Crop statistics. 

Railroad earnings. 

Social and political factors. 

All figures on mercantile and monetary conditions. 

Investors and merchants who carefully study the figures on 
these subjects each week first reduce them to three barometric in- 
dex figures, one for each of the above three headings. In addition, 
these three figures for present surface conditions are averaged and 
a final summary barometer figure for present surface conditions 
obtained. Practically speaking, these barometer figures on surface 
conditions are mathematically correct, being obtained by compiling 
the actual figures on bank clearings, money rates, stock exchange 
prices, transactions, etc., comparing them with certain scales of 
measurement and averaging the final results. These figures, there- 
fore, are not a matter of opinion, and any two persons using the 
same scale 2 would arrive at the same conclusion. The main use 
of the summary barometer figures is to plot the "area" mentioned 
earlier in this article ; but these figures are also interesting for other 
purposes. If, for instance, during a period of depression the sum- 
mary barometer figures for a long period of weeks show a con- 
tinuous but slow increase, the country is usually facing improved 
conditions, however poor business may appear to the average mer- 
chant. On the other hand, if during a period of great prosperity, 
the barometer figures for surface conditions continue to increase, 
there is liable to be a change for the worse at any time. Also the 
greater the difference between the respective barometer figures, the 
sooner the change may be expected. 

But in addition to collecting statistics each week or month from 
which to deduce barometer figures, bankers and merchants have 
the monthly figures, on each of the twenty-five or more subjects 
mentioned above, interpreted each month for what they signify. 
Such interpretations are made in accordance with the rules above 
referred to, and show how many subjects signify a "continued im- 
provement," how many signify "no improvement," and how many 

2 Moreover, persons using different scales would obtain similar plots. Although 
their definite figures for each week or month would differ, yet the relation of one 
week to another should be identical. 

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128 The Annals of the American Academy 

signify "no change." Figures on the majority of these twenty-five 
subjects can be obtained not oftener than monthly, and, therefore, 
the entire ground need be covered in detail but once each month. 
As reported, these figures are inserted each month in their re- 
spective tables, and in addition to showing present conditions they 
also serve as a means of making an intelligent estimate of what 
will be the final or total figures for each of the twenty-five subjects 
at the end of the current year. This portion of the work is known 
as the monthly report. 

This estimate for the year, which is used when plotting the 
figures on any one subject, is then compared with the final figures 
for the preceding years as given under the first-mentioned table ; that 
is, the table showing conditions by years for a considerable period 
of time. If there has been a normal growth or change — some- 
times a favorable showing requires an increase and sometimes a de- 
crease — the figures on a given subject are considered as signifying 
satisfactory conditions; but if a growth or a change is abnormal, the 
figures are considered as showing unsatisfactory conditions. In 
other words, satisfactory conditions require a normal change, and 
figures of much less than normal or much more than normal are 
considered unsatisfactory. 

The industrial organization of the country is similar to the 
physical organization of the human body. The individual normally 
should have a certain appetite and should require a normal amount 
of food. The normal appetite increases from childhood to youth, 
and from youth to maturity; but its relation to health is the same. 
So long as a man regularly eats a normal amount, he continues to 
increase in strength and vitality; but if he overeats, or is underfed, 
he ceases to gain strength, his efficiency is reduced, and he becomes 
subject to attacks of disease. As, therefore, the maintenance of 
good health requires a certain normal balance, so do the prosperous 
conditions of industrial life. This, however, does not mean fixed 
conditions, as in a rapidly growing country like America, the fig- 
ures to be normal must increase in proportion as the wealth, popu- 
lation. and activity of the country increase. Great increases or great 
decreases are distinctly not normal, and are always significant of a 
marked change ; a change for the better in time of depression, when 
present conditions are very unsatisfactory; or a change for the 

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Barometric Indices of the Condition of Trade 129 

worse during a period of prosperity, when present conditions are 
apparently very satisfactory. 

This principle is well illustrated in the case of money rates, for 
instance. When money rates gradually increase, and surplus re- 
serves gradually decrease after a period of depression, the combina- 
tion is significant of improved present conditions ; when commercial 
paper is discounted at 3^2 per cent., one may always be sure that 
the country is not prosperous ; that many factories are idle and 
many men out of work. As the mills resume operation, and as 
business becomes more active, money rates increase and surplus re- 
serves decrease, all of which increase is shown by higher barometer 
figures for surface monetary conditions. On the other hand, as 
money rates increase too greatly, and the surplus reserves decrease to 
very low figures, the change is significant of unsatisfactory future 
conditions. In other words, when money rates are below normal, 
business is dull, but may soon be better; and when money rates are 
above normal, it shows that business is good, but may soon be 
worse. 

Of course, if this data were obtained by each investor, mer- 
chant or banking house independently, it would require a force of 
clerks to collect, analyze and sort the mass of figures, but as the 
data may now be obtained from a central agency, all of the drudgery 
is eliminated. The investor or merchant may simply note these 
barometric indices, as they are made up each week, and thus keep 
in constant touch with surface conditions, and always know how 
much of the present period (whether of prosperity or depression) 
has been consumed. By reference to the tables, the monthly figures 
may be interpreted once a month in accordance with the rules men- 
tioned. But the average banker, merchant and investor is satisfied 
to depend upon the barometer figures and reports furnished by the 
central agency, and does not make a personal examination more than 
once or twice a year, excepting in times of panic or uncertainty. 

But whatever the time or money expended, merchants and 
investors always obtain great profit from such studies, as they 
give a clear idea not only of the present surface conditions, but 
also of underlying conditions, the relation of both to normal condi- 
tions, and consequently what may be expected in the future. If, 
during a period of depression, uncertainty and discouragement, the 
barometer figures and the charts show distinctly that the country is 

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130 The Annals of the American Academy 

about to enter a period of prosperity, investors buy stocks, mer- 
chants buy goods, and the banker extends loans. The result is 
that when prosperity returns, such investors and merchants find 
that they have purchased very much below the prevailing prices, 
and obtain many times the profit that they otherwise would. 

During a period of great prosperity and extravagance, when 
everybody is buying goods or securities and there is a general in- 
crease of indebtedness, if these barometer figures and charts fore- 
tell a change for the worse, such investors sell their securities for 
cash, such merchants reduce their stock and outstanding credits, 
and such bankers reduce loans or place a large part of them "on 
call." These statistics, therefore, not only serve as an insurance 
against loss, but enable these men to be prepared to take advantage 
of the very low prices which are sure to recur in the course of a 
year or two. 

The Great Possibilities 

First, a word to bankers : Banks have two distinct functions. 

(1) They aid in the planning and carrying out of transporta- 
tion, industrial and commercial enterprises by providing the capital 
therefor. 

(2) They regulate the number and growth of such enterprises 
by conscientiously increasing or contracting this supply of capital. 

The first function is performed by collecting money from a 
large number of people, known as "depositors," and loaning the 
same for definite periods through the purchasing of commercial 
paper and other securities such as few individual depositors would 
be able to buy extensively. The second function is performed by 
varying the amount of cash and securities held; for instance, during 
periods of panic or of depression, when individuals withdraw money 
from useful channels and withhold cash, it is a bank's duty to give 
all cash possible by purchasing such good commercial notes and 
high-grade securities as are selling below their true value. On the 
other hand, during periods of great prosperity, it is a conservative 
bank's- duty to dispose of a large portion of this commercial paper 
and these other securities, storing, up large cash reserves pending 
the next period of money stringency and panic conditions. 

In this way banks not only can perform a great service to both 
depositors and borrowers, by combining small sums and loaning them 

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Barometric Indices of the Condition of Trade 131 

in safe and profitable channels, but also can act as great regulators 
and "storage basins" for the entire business community. A bank 
can store cash during periods of great prosperity, when the public 
is willing to loan to anybody and buy anything, and then give out 
such cash during periods of depression when the public refuses to 
loan solvent borrowers or to purchase even the highest grade securi- 
ties. For performing these two functions the bank receives a two- 
fold reward ; namely, the market rate of interest on the loans and 
securities held, and also a large profit on the purchase and sale of 
securities. It not only more fully serves its true purpose in the 
community, but also makes very much greater profits and assumes 
much smaller risks. 

In other words, such a bank will receive an income of over 4 
per cent, upon its investments and a profit of from 10 per cent, to 
20 per cent, on their sale, besides being in the strongest possible con- 
dition with very large reserves at the time of a crash or money 
stringency. The use of these barometer figures insures not only 
the profits of good loans and satisfactory sales, but also it insures 
the purchase of only the highest grade securities, and indicates the 
time for disposing of such property before the money is needed 
for reserve and the accommodation of local customers. 

Secondly, a word to merchants : The old plan for corporations 
and merchants to borrow always about the same amount of money 
each year, to carry about the same amount of merchandise and to 
extend about the same amount of credit to customers, is entirely 
wrong. The most successful corporations and merchants are those 
who study fundamental statistics and who base their borrowing, 
their buying and their credit policy on what these figures show. 
By such a method a merchant knows when underlying conditions 
are becoming sound and a period of improvement is at hand ; while 
he will reduce loans, dispose of all merchandise possible and de- 
crease the credit extended to customers, when the figures on these 
subjects show that conditions are becoming unsound, and the coun- 
try is about to enter a period of high money rates and declining 
commodity prices. 

By studying these underlying conditions he is able to change 
his position and policy at a time when those who do not possess 
these figures have not the slightest suspicion that the country is on 
the verge of a severe panic. 

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13 2 The Annals of the American Academy 

Third, a word to investors : Another poor principle is embodied 
in the old plan of investing money as accumulated, as well as in all 
forms of speculation. The safest and most successful method of 
investing is to watch the barometer figures on the twenty-five sub- 
jects mentioned, and then to buy and to sell only when these subjects 
plainly show which to do, confining all purchases to the very highest 
grade securities. By such a method purchases are made only at the 
end of a long period of declining prices, after which securities are 
held from two to four years until the figures on these twenty-five 
subjects show that prices have about reached the top. Then they 
are sold, the proceeds reinvested in short-term municipal notes and 
high-grade bonds maturing in from one to three years, or else de- 
posited in banks. During these years a panic invariably comes when 
this money will again purchase, at from 20 per cent, to 50 per cent. 
less price, the same high-grade securities that were sold a few years 
previous. 

By this process an investor averages an annual income of about 
8 per cent, from money invested in the highest grade bonds, and 
about 16 per cent, from money invested in the highest grade stocks. 
Moreover, he is always in an impregnable position with large cash 
assets whenever trouble comes, while this method eliminates all 
necessity for borrowing or purchasing on margin. Of course, if this 
method contemplated purchasing anything but the highest grade 
securities, it would simply be one form of speculation ; but con- 
sidering the character of securities purchased, this is a much more 
conservative method than to purchase the investments whenever one 
has idle money, irrespective of conditions, either for permanent in- 
vestment or to sell again, which is the method followed by those who 
do not possess and study these figures. 

Fourth, a word to brokers and bond dealers: During eleven 
years given exclusively to work for the largest bond and stock ex- 
change firms, the author found that some firms are always prepared 
for every change in monetary and investment conditions, and uni- 
versally profit thereby — while others are often unprepared and either 
sustain losses or are handicapped by heavy commitments. More- 
over, in nearly every case, I found that these most successful firms 
gave much study to 'fundamental statistics and planned their business 
policy in accordance with what such statistics foretold. 

Firms who have watched these figures during the past years 

(614) 



Barometric Indices of the Condition of Trade 133 

have always been prepared for every period of high prices by having 
previously purchased large amounts of long-term bonds at low 
prices. As money rates have increased, such firms and their cus- 
tomers have gradually reduced their loans and changed securities. 
By such a policy they are always able to trade at the market and 
still make a profit. When these figures have foretold a coming 
period of money stringency, such firms have purchased and recom- 
mended only short-term notes and bonds maturing within one or 
two years, which insures that they and their customers will at critical 
times have large cash balances in order to take advantage of every 
period of low prices. Such firms not only make great profits, while 
at the same time they are keeping themselves in an impregnably 
strong financial condition, but create a most loyal and valuable 
clientele. 

Many firms do not become interested in short-time notes until 
money rates are high and investors should be buying long-term 
bonds. Of course, this is the time for corporations to become in- 
terested therein; but not bond dealers, who should purchase and 
recommend short-time notes before money rates are high and when 
bonds are selling at top prices. 

Some bond dealers may object to this policy and discourage 
customers from "taking profits" on bonds, but urge them to hold 
all bonds until maturity. Aside from this policy being unfair to the 
investors, we know that some, considering even their 10 per cent, 
profit, make much less money during a long period of years than 
if they would adopt the more honest policy and sell more active and 
high-grade bonds, even although the profits are very much less. 
The reason for this is that in the latter case they would have many 
more opportunities to reinvest a given amount of money, making 
several small profits instead of one large profit, and in addition 
always have the undivided good-will of the customer. 

Once men were needed who were willing to give their lives 
for their country ; but such time is now past. To-day men are 
needed who are willing to give their country the benefit of their 
study, judgment and power. But for some reason men seem much 
less willing to give the latter. Many men, willing to go to battle 
and give their lives for their country, are utterly unwilling to loan a 
small portion of their capital. Many men, willing to expose them- 
selves to the bullets of an enemy, when occasion calls, are utter 

(615) 



134 The Annals of the American Academy 

cowards when it comes to the great affairs of commerce and in- 
dustry. 

Nevertheless, the ultimate prosperity of this country depends, to 
a large extent, upon whether or not we take the time to watch and 
study underlying conditions, using our influence in keeping our 
country in a normal, healthy state. Our nation is like a boy, need- 
ing to be strengthened and encouraged during days of trouble and 
depression, and curbed and checked during days of strength and 
prosperity. Instead, however, of helping the nation, ninety-nine out 
of every hundred men follow the crowd or float with the current, 
becoming discouraged during days of adversity and reckless during 
days of prosperity. 

For this reason, therefore, above all other reasons, I write so 
earnestly relative to this work. America wants men who are willing 
to enlist as soldiers — not to kill and destroy — but to study funda- 
mental conditions, and to help hold throttles of the great engines 
of progress upon which this country so absolutely depends. Each 
individual who reads this article has the power of making the next 
panic less severe and the next period of prosperity less reckless, and 
whether or not we accept this trust, or instead allow ourselves to 
be swept along with the great majority, decides whether we are to 
be a benefit or an injury to our country — whether our nation is 
truly better or worse by having us as citizens. 



(616) 



SOURCES OF MARKET NEWS 



By Roger W. Babson, 

Editor "Babson's Reports on Fundamental Conditions,' 
Wellesley Hills, Massachusetts. 



Market news is distributed through seven different channels. 
Each of these channels is of itself distinct, although all are inter- 
related in aims, methods, sources of information and other ways. 
Moreover, although some firms employ all of these seven chan- 
nels, yet many able investors depend on only one of them. 
These various sources may be enumerated as follows: I. Electric 
News Tickers. 2. Printed News Bulletins. 3. Card Systems. 4. 
Daily Papers. 5. Weekly and Monthly Periodicals. 6. Annual 
Manuals. 7. Miscellaneous Mediums. 

The following is a brief description of each of these sources : 

News Tickers 

These are in operation in New York, Boston, Philadelphia, 
Baltimore, Washington, Cleveland, Chicago, Cincinnati, Buffalo and 
St. Louis, and also in one or two cities abroad. 

The prices of this service range from $30 to $40 per month and 
all are operated by one syndicate represented by Mr. C. B. Strecker, 
excepting a competitive service in New York operated by the same 
interests that control the Wall Street Journal. 

These news tickers are in the offices of most of the leading 
stock brokers, and all are operated by electricity through one key- 
board in a central office in each of the above-mentioned cities. 
There is also a close working agreement between Mr. Strecker and 
the Western Union Telegraph Company. The mechanism for these 
tickers is practically the same as that of the ordinary stock quotation 
tickers, excepting that the news tickers require a much wider paper 
and are much more flexible as to type and sentences. Although it 
takes some time to print a word, letter by letter, yet theoretically 
these news tickers represent the quickest form of news distribution. 

(617) 



136 The Annals of the American Academy 

The Bulletin Service 

There are five of these services in operation as follows : Two in 
New York City at a price of $40 and $30 per month, respectively; 
two in Boston at a monthly price of $50 and $30, respectively, and 
one in Philadelphia at a price of $30 per month. Three of these, one 
in each of the cities, are supposed to be under the control of Mr. C. 
W. Barron, of Boston ; while the other two, New York and Boston, 
are believed to be under the control of Mr. Strecker's syndicate. 
The bulletins for a given city are printed at a central office on slips 
measuring about ten inches by five inches, which are distributed to 
subscribers about every thirty minutes between 9 a.m. and 3 p.m. 

These bulletins give much more information than the news 
tickers ; but, of course, the service is not as rapid. Not only is 
more time required to set up the type and print the bulletins, but 
their distribution by boys consumes considerable time. Neverthe- 
less, these bulletins are very valuable and complete, and much credit 
is due to Mr. C. W. Barron for the remarkable development of the 
service, which is now almost universally used by the leading stock 
exchange firms, bond houses and banks. Outside of the three cities 
above mentioned, there is absolutely no city in the world having a 
similar service, although "Reuters" claim to have a service abroad 
modeled somewhat upon the same plan, but on a much smaller and 
less expensive scale. In short, I understand the whole field, both as 
to news tickers and bulletins, is controlled by Mr. Barron and Mr. 
Strecker and their associates, although the keenest rivalry is said 
to exist between these two men. 

Card Systems 

Following the news tickers and bulletins in importance, come 
the card systems, and in this respect the field is divided between 
the Babson System, Inc. — the older of the two — and the Standard 
Statistics Bureau of New York. The Babson System has two ser- 
vices, one on stocks and one on bonds, while the other company 
makes a specialty of stocks. The price of each of the card systems 
on stocks is $5 per month, and the Babson System makes an addi- 
tional charge of only $5 for its auxiliary service on bonds. 1 Al- 
though 5 by 8-inch cards are used with each of these systems, yet 

1 Dealers may have these bond cards supplemented by a special list of 
offerings showing who owns and has for sale the various securities, and 
also who is desirous of purchasing them, giving prices, amounts, etc. 

(618) 



Sources of Market News 137 

there is a marked difference between the two systems, each having its 
advantages and disadvantages, viz. : 

(a) The Standard Statistics Bureau of New York covers only 
the more active listed stocks; but delivers the cards by messenger. 
The Babson System mails its cards; but covers a larger number of 
companies and usually gives much more information relative to these 
companies. 

(b) The Standard Statistics Bureau makes all corrections and 
additions on .its cards, which is very convenient ; but this method 
often causes a delay in the printing and distribution of dividend 
news, earnings, etc. The Babson System has part of its information 
on cards, but the very latest news of dividends, earnings, etc., ap- 
pears on a daily sheet which is printed and mailed immediately after 
the stock exchange closes each day, and is in the broker's office by 
9 o'clock the following morning. 

(c) The cards of the Standard Statistics Bureau stand on the 
narrow 5-inch end ; while the Babson System places the cards on 
the broad 8-inch side. 

Moreover, as the two services are strictly competitive and con- 
tinually striving with each other to give the most news possible, 
and to deliver this news in the quickest possible time and in the 
most convenient form, the leading stock exchange firms, bond deal- 
ers and banks subscribe to both services. Not only is this due to 
the fact that the total price of both card systems is very slight, only 
$10 a month on stocks or $15 a month with the auxiliary service on 
bonds, compared with the cost of news tickers and bulletins, but one 
service serves as a check upon the other. 

Both of these card services have several distinct advantages 
over any other form of distributing and filing news. Not only is 
the news distributed fairly quickly through these services, but all 
of the news is automatically and alphabetically filed, ready for in- 
stant reference a day or a year hence. With the bulletins several 
subjects are treated on the same sheet, and the sheets are so many 
that at the end of the day they are usually thrown in the waste 
basket; but by having the news relating to each company treated 
on a separate card, and only the important news sent out, it is pos- 
sible to retain all cards. If at any time one card supplements an- 
other, notice is given to throw away the card which becomes obso- 
lete and replace it by the new card. Therefore, not only are these 

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138 The Annals of the American Academy 

card systems used by those whose business does not warrant the 
expensive news tickers or the bulletin service, but owing to their 
value as permanent files, both of the competitive card systems, in- 
cluding the auxiliary service on bonds, are used by most of the 
leading firms as supplemental to the news ticker and bulletin sheets. 

Daily Papers 

Daily papers may be divided into two classes: (a) those strictly 
financial, like the Boston News Bureau ($12 per year), the Wall 
Street Journal ($10 per year), the Wall Street Summary ($8 per 
year) and others which might be mentioned. 

(b) Leading news dailies having able financial writers, such 
as the Boston Herald, $13 per year; the Boston Transcript, $9 per 
year ; the New York Evening Post, and many others which might be 
mentioned, such as the New York Journal of Commerce, $12, etc. 

Weekly and Monthly Papers 

The leading weekly paper without doubt is the Commercial and 
Financial Chronicle ($10 per year), which may be found in almost 
every banker's or broker's office. The Chronicle, together with its 
supplements, probably gives more for its money than any other 
weekly publication, financial or otherwise, with which the writer 
is acquainted. In addition to the Chronicle, however, there are 
many other good weekly papers which might be mentioned, and 
among them the following are of interest : 

Banker and Tradesman ($5), Review and Record Company, 127 Federal 
Street, Boston. Weekly. 

Boston Commercial ($2), 246 Washington Street, Boston. Weekly. 

Commercial and Financial Chronicle ($10), corner of Pine and Front 
Streets, New York. Weekly. 

Economist ($5), Economist Publishing Company, 189 La Salle Street, 
Chicago. Weekly. 

Electric World ($3), McGraw Publishing Company, 239 West 39th Street, 
New York. Weekly. 

Electric Railway Journal ($3), McGraw Publishing Company, 239 West 
39th 'Street, New York. Weekly. 

Engineering and Mining Journal ($5), 505 Pearl Street, New York. 
Weekly. 

Finance ($5), Finance Publishing Company, 316-318 Caxton Building, 
Cleveland, Ohio. Weekly. 

(620) 



Sources of Market News 139 

Financial World ($4), Guenther Publishing Company, 18 Broadway, New 
York. Weekly. 

Iron Age ($5), David Williams Company, 14-16 Park Place, New York. 
Weekly. 

Manufacturers' Record ($4), Manufacturers' Record Publishing Com- 
pany, Baltimore. Weekly. 

Money ($5), Finance Company, 711-718 Ferguson Building, Pittsburg, 
Weekly. 

Moody's Magazine ($3), 35 Nassau Street, New York. Monthly. 

New York Mining Age ($2), 27 William Street, New York. 

Progressive Age ($3), Progressive Age Publishing Company, 280 Broad- 
way, New York. Bi-monthly. 

Railway Age Gazette ($5), Railroad Gazette Publishing Company, 83 
Fulton Street, New York. Weekly. 

Railway World ($4), 822 Witherspoon Building, Philadelphia. Weekly. 

Review of Reviews ($3), Review of Reviews Company, 13 Astor Place, 
New York. Monthly. 

United States Investor ($5), Frank P. Bennett & Co., Atlantic Avenue, 
Boston. Weekly. 

World's Work (The) ($3), Doubleday, Page & Co., 133-137 East 16th 
Street, New York. Monthly. 

Stock Exchange Gazette ($7.50), England. Weekly. 

Stock Exchange Weekly Official Intelligence ($15), England. Weekly. 

Monde Financier ($5). Weekly. 

Pour et Le Contre ($4.50). Weekly. 

Semaine Financier e ($5). Weekly. 

Allgemeine Borsen-Zeitung, Germany. Weekly. 

B'drscn Revue, Germany. Weekly. 

Borsen Statistik, Germany. Weekly. 

Financier (De) (Pik), Holland. Weekly. 

Among the monthly periodicals there are many, and one of the 
most interesting is a new publication emanating from New York 
known as the Ticker. Although this magazine is different from 
anything of the kind which has ever been published — and for this 
reason certain people do not like it — yet it is no doubt one of the 
most useful and practical magazines ever published for speculators 
and such investors as buy and sell stocks for a profit. It not only 
contains many instructive and interesting articles on the general 
subject of speculation and investment, but also contains an invest- 
ment digest giving the latest news relative to leading corporations. 

There are also a number of general news magazines, such as 
the World's Work, Success, Saturday Evening Post and others 
which might be mentioned containing from time to time very inter- 

(621) 



140 The Annals of the American Academy 

esting financial articles. Great changes have taken place in the 
policy of such publications during the last five years, and the public 
is being educated and kept informed as to financial matters in a 
very much more thorough manner than ever before in the history of 
this country. 

Annual Manuals 

The three leading manuals are Moody's, at $12 per year; Poor's, 
at $15 per year, and the Manual of Statistics, at $5 per year. As 
the cost is so slight, and the competition so keen among these pub- 
lications, every stock exchange firm, bond dealer and bank should 
have all three publications each year. Firms and individuals, how- 
ever, feeling that they can afford only one, I believe, usually sub- 
scribe to the Moody service for two reasons : ( 1 ) The Moody 
service endeavors to cover railroad, public utility and industrial 
corporations and their securities with equal thoroughness. (2) The 
Moody service has a monthly cumulative supplement, which is in- 
tended to keep the main book or manual up to date throughout the 
year. 

However, I believe all of those publications are ably man- 
aged and are worthy of the support of all. Moreover, probably 
each contains some information not contained in either of the others, 
so that every broker, bond dealer and bank should subscribe to them 
all — one serving as a supplement or check upon the others. All of 
these manuals are published in New York, where they may be ad- 
dressed as per the name of the books. 

Miscellaneous 

Although there are certain services which I have not mentioned 
in this article which are perfectly legitimate, and in their way valu- 
able, yet under this heading I wish to mention another class. I 
especially have reference to the services of tipsters (which are ad- 
vertised occasionally in the personal columns of certain daily papers, 
especially in the Sunday editions), and also the cheap market letters 
issued by bucket shops and irresponsible brokers. 

The above is a concise, general description of the seven sources 
of market news, so far as the public is concerned, although I doubt- 
less have omitted to mention many worthy services and publica- 

(622) 



Sources of Market News 141 

tions. No description, however, can be complete without also re- 
ferring to the various sources on which the various publishers are 
dependent for the material from which the above seven news chan- 
nels are supplied. These sources may also be subdivided into seven 
divisions, viz.: (1) Original Documents. (2) Official Statements 
and Reports. (3) Analyses and Investigations. (4) Bonafide 
Rumors. (5) Advertisements and ''Write-ups." (6) Manufactured 
Gossip. (7) Miscellaneous. 

Original Documents 

By these I refer to original documents, reorganization plans and 
other such papers. All properly prepared descriptions of prop- 
erties and especially bond descriptions should be compiled only after 
a careful study of the original documents or similar papers. 

There is a tendency among brokers and bond dealers to copy 
one circular from another and, after this process has gone on for 
some time the fourth or fifth revision is considerably different from 
the original document, even when each dealer has been perfectly 
honest in his work. For while direct misstatements are very seldom 
made, yet there is sometimes a temptation to omit certain unfavor- 
able features which should be mentioned. 

Official Reports 

Before a dividend is declared or rights determined upon, many 
rumors are afloat relative to what action a board of directors is 
to take relative to such matters. Nothing is known with certainty, 
however, until the treasurer issues a public official statement, which 
is given to the press immediately at the close of the meeting of the 
board, and a few days later is printed in leading newspapers and 
mailed to all stockholders. Therefore, investors should depend 
only upon these official statements. 

When earnings are compared and analyzed, investors should 
also make sure that such analyses are based only upon sworn state- 
ments of the company officials and that all estimates are espe- 
cially avoided. Reports filed with the Interstate Commerce Com- 
mission, as well as those appearing in the standard manuals such as 
Moody's and Poor's, are usually of this class, and, therefore, can be 
depended upon. Moreover, the information distributed through the 
card systems previously mentioned is usually of this character, as 
well as crop and other government reports. 

(623) ' 



142 The Annals of the American Academy 

Investigations 

Although this source of news cannot be depended upon with the 
same certainty as the first two classes mentioned, an honest and 
impartial investigation always possesses much merit and is well worth 
careful study. The Wall Street Journal in years past has contained 
many comparisons and analyses of marked value, and the writer's 
"Railroad Analyses," which appear in the latest edition of Moody's 
Manual, come under this heading, including as they do his personal 
opinions. 

When reading such analyses and investigations, however, the 
investor must be able to differentiate between honest analyses and 
advertising "write-ups," mentioned in the following paragraphs. An 
honest and impartial comparison of two properties is made for the 
purpose of aiding the reader to obtain a correct idea of the intrinsic 
value of one or more securities. The purpose of the "write-up," 
however, is usually distinctly the opposite ; namely, to mislead the 
reader and give him a wrong idea as to the merits of a security. 

Bonafide Rumors 

Another source of news which deserves consideration is the 
publication of bonafide rumors. If a publisher of market news 
should always wait until such news is sufficiently authorized before 
mentioning it in his publication, such publication would be of lim- 
ited use. A publisher is justified in publishing not only official 
statements, but also certain rumors, provided they are bonafide 
rumors. 

If it is truly current gossip that certain interests are nego- 
tiating for the control of a certain property, it is the business of a 
financial publisher to mention such a rumor, in order to give his 
readers the benefit of all advance information which it is possible 
to obtain. On the other hand, such "information" should be given 
purely as a rumor, and the publisher should make clear that it 
cannot be confirmed, and that it may have been issued simply to 
affect the market price of the stock. 

Write-ups 

All of the above four methods of - news are legitimate; but I 
do not believe that most "write-ups," appearing as editorials and 

(624) 



Sources of Market News 143 

news items, are legitimate. Of course, some publishers claim that 
there is no difference between an investigation and a "write-up" ; 
but to me there is a great difference. In the former case the writer 
has no personal axe to grind ; but, believing that he has some valuable 
information about some property of distinct interest to his sub- 
scribers, he prints the results of his study simply to increase the in- 
trinsic value of his publication. 

"Write-ups," however, are given by publishers in exchange 
for money or for "calls" upon certain stock or for advertising or 
other purposes. 

Unfortunately, considerable of this work is common, and the 
following statement by one publisher is probably true, viz. : "Well, 
if we didn't do it, the public would be obliged to pay us four times 
as much for our paper as they do now." Granting, however, that 
there are many men who would rather pay a small price and be 
fooled as to news than to pay a large price for a reliable publica- 
tion, yet right is right and I believe that all "write-ups" should be 
eliminated and the subscription prices adjusted accordingly. 

Manufactured Rumors 

Of all the illegitimate work of a financial editor, the very worst 
is the knowing publication of absolute lies for their effect upon the 
stock market; and, however guilty certain publishers may be for cir- 
culating purchased "write-ups," yet I believe very few are guilty of 
intentionally publishing what they know to be out-and-out lies. In 
fact, I believe that our well-known publishers use every effort to 
eliminate such matter from their work. 

However, notwithstanding their diligence, many manufactured 
rumors persistently appear in print and cause considerable loss 
either to buyers or sellers. Usually the larger and cheaper the 
publication, the more difficult it is to keep out such matter. 

Miscellaneous Sources 

Under this heading may be included various cheap market 
letters and newspaper advertisements, especially such free advice 
as floats about most board rooms and brokers' offices. Advertise- 
ments of these miscellaneous organs may be found in Sunday papers 
and should always be avoided. 

Of the sources of such news, the writer can state only that 

(625) 



144 The Annals of the American Academy 

there is usually no source for it at all, it being entirely manu- 
factured under the direction of the person by whom it is dis- 
tributed. In fact, it is said that many tipsters' advise one-half of 
their clients to buy a certain stock and the other half to sell it 
on the same day. I recommend that all such tips should be avoided 
as one would avoid smallpox, firmly believing that it is impossible 
for one to know how the market will act to-morrow or next week 
or even next month. Long swings may be forecasted by a study of 
fundamental statistics ; but one stands a much better chance to make 
money at roulette or dice than by playing for a one per cent, profit 
on the daily movement of any stock. 

Conclusion 

How to distinguish between facts and "write-ups" or between 
legitimate rumors and manufactured tips, it is hard to explain as 
in a way every one is dependent upon his own intuition. On the 
other hand, to be able to distinguish is very important in all in- 
stances, and absolutely necessary for those who do not subscribe to 
the highest class of news services. Of course, both the honesty and 
the accuracy of every publication are generally known, and such 
reputation is common property which any one may learn by care- 
ful inquiry. 

To give any rule for those who will not take pains to inquire 
closely is very difficult. It is, however, well to keep in mind that 
purchasing information is about the same as purchasing any com- 
modity, and one cannot obtain more than one hundred cents for one 
dollar. In other words, low-priced publications usually depend 
upon some other source than their subscriptions for their income, 
and are, therefore, more influenced by advertising and other con- 
siderations than publications which solicit no advertising, either for 
themselves or other publications. Of course, there are exceptions 
to this rule; but it is safe to say that the more expensive publica- 
tions and services are usually the most reliable, and certainly they are 
less likely to take advantage of their subscribers if upon them they 
are absolutely dependent for their existence. 



(626) 



INFLUENCES AFFECTING SECURITY PRICES AND 

VALUES 



By Thomas Gibson, 
Author of "Cycles of Speculation," and "Pitfalls of Speculation," 

New York. 



In discussing the above question it is all-important to bear in 
mind that the word "values" refers to one thing, and the word 
"prices" refers to another and very different thing. Both are 
important, but in choosing a time to sell or buy securities we are 
primarily interested in prices as compared to values. Our great 
opportunities are created when the two are divorced. If prices and 
values always moved in consonance, our opportunities would be 
greatly limited. 

For example, the low prices established in the latter part of the 
year 1907 were occasioned by artificial causes having no bearing 
on actual values. I do not mean to offer the opinion that the entire 
decline of that panic year was artificial, but prices had more to 
do with the case than did values. Prices went far above values in 
the latter part of 1906, and far below values in the latter part of 
1907. 

In order clearly to distinguish between these two divisions of 
the question I will briefly discuss the subject from both standpoints, 
i. e., influences affecting security prices, and influences affecting 
security values. It will be impossible, in the limits which are 
assigned to me at present, to make any attempt to discuss fully all 
the minor influences affecting either prices or values, but that is 
really not necessary, as many of the influences are interdependent. 
I will therefore confine my statements to the most important factors 
as they appeal to me. 

Manipulation is the most common reason for the segregation 
of prices and values. It is quite natural that when a man, or a 
number of men, wish to buy anything, they strive to buy it as 
cheaply as possible, and that, per contra, when they wish to sell 
anything, they strive to sell it at the highest possible price 

(627) 



146 The Annals of the American Academy 

obtainable. This is readily understood and appreciated so far as 
the traffic in real estate or commodities is concerned, but it is one 
of the most remarkable phenomena of security price movements 
that when prices are artificially depressed to facilitate accumulation, 
or artificially inflated to facilitate distribution, people lose sight of 
values entirely and become panic-stricken at low prices and foolishly 
elated when high prices obtain. 

The statement of Anselm Rothschild that the secret of his suc- 
cess was "buying cheap and selling dear" appears almost pedantic in 
its simplicity, yet any man who has had a long experience in the 
purchase and sale of securities would inform you that in actual prac- 
tise this rule is diametrically opposed. If we take our most popular 
and widely advertised security as an example, we find that the broker 
who vigorously recommended it at ten or fifteen dollars a share 
was in danger of losing his clientele, and that the broker who 
laughed at it at ninety dollars a share was execrated. In both 
instances values were lost sight of. Only a few weeks ago a rail- 
road stock selling normally around forty-five dollars a share sold up 
to about eighty dollars a share in fifteen minutes, and back to the 
starting point in fifteen minutes more. It would be ridiculous to 
assume that "values" could change so greatly in the course of a 
month, but the price changed in an hour. Even more recently a 
listed security with a discoverable value of between fifteen and 
twenty dollars a share advanced about ninety dollars and stood at 
that bad eminence for some time. The bubble was pricked and the 
false price corrected in a single day. 

These specific instances may be construed, or misconstrued, as 
an argument that any attempt to reconcile prices and values is 
abortive; but not so. I have offered two extreme instances in 
order to emphasize the statement that prices and values get sep- 
arated now and then through manipulation. The man who took the 
time and trouble to examine the statistical showing of Hocking Coal 
and Iron would not have considered buying it at ninety, or at eighty, 
or even at fifty, for that matter. 

Fright is a very common cause of disparity between prices and 
values. Psychologists have written a great deal about the con- 
tagious fear of a crowd — whether of a crowd of animals or human 
beings. We have all observed the effect of one panic-stricken 
horse or steer on the band to which it belongs. There is but little 

(628) 



Influences Affecting Security Prices and Values 147 

difference in the effect on human beings. We may examine the 
history of ancient and modern times and find that the temper of 
a mob changes instantly and simultaneously. Shakespeare aptly 
and clearly illustrates this in the speeches of Brutus and Mark 
Antony after the assassination of Caesar. The Commune in France 
gave numerous evidences of such sudden changes of heart 

It is not my purpose to discuss psychology here. Personally 
I have observed the movements of security prices for many years 
and tried to explain to my own satisfaction the philosophy of these 
sudden and apparently unwarranted sentimental changes, but have 
never succeeded. Nevertheless the fact remains that such periods 
occur and have their decided effect on prices, even when funda- 
mentals point the other way. 

In the latter part of 1907, after the prices of securities had 
suffered a great decline, people who had kept a good heart up to 
the crucial moment became suddenly and senselessly possessed with 
fear and began to throw away or sacrifice good property, and 
incidentally to aggravate the trouble by locking up and hoarding the 
medium of exchange. The foolishness of this method of procedure 
carried it into the ridiculous stages. Just at the time when purchases 
were warranted we sold ; just at the time when we should have 
been bold we became timid. When our counters were littered with 
bargains we not only refused to buy, but we hastened to sell, and 
that is only one instance in a long series of like happenings. 

Technical conditions frequently cause or greatly accelerate an 
advance or decline in prices. Walter Bagehot, speaking of the great 
swings in prices, says : "At times a great many stupid people have 
a great deal of stupid money. This blind capital seeks for some 
one to devour it, and there is plethora. It finds some one, and 
there is speculation. It is devoured, and there is panic." Of course, 
Mr. Bagehot speaks of the great changes in prices, but we can 
readily reduce his statement to cover many of the smaller changes 
which occur intermediately. 

Values are affected by more important matters — crop failures ; 
disasters, such as the San Francisco earthquake; bad management; 
dishonesty, or the mistaken ventures of enthusiasts. We may feel 
quite safe in taking the stand that so far as crop failures are 
concerned we need have less apprehension from that trouble each 
year. The use of fertilizers, scientific farming, the government 

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148 The Annals of the American Academy 

reports, etc., all aid the farmer. It is quite improbable that we 
will witness a general crop failure at any time in the future. 

Probably the one factor which is at present working most 
drastically against values is the high cost of living. I regret to 
state that figures produced by the United States government showing 
the movement of wages as compared with the advance in food 
products cannot be depended upon. Whether this is the result of 
politics or ignorance, I will not undertake to say, but whatever the 
cause may be, it appears that the government attempts to demon- 
strate that wages have advanced proportionatelv with the cost of 
living. There is an old saying that "figures cannot lie, but liars can 
figure." It is a very easy matter to take certain products which 
have actually declined in price, without properly weighting them, 
and strike an average which is entirely false so far as the actual 
movements of necessary commodities are concerned. It is also pos- 
sible to take as a basis the wages which have risen the most rapidly, 
leaving out those which have not risen at all. 

The Dun index numbers, which were suddenly stopped a short 
time ago for reasons which I presume are obvious to most observers, 
showed a very different state of affairs than that shown by the 
government. I talked recently with Professor Norton, of Yale, 
who is at present engaged with me in preparing an index number 
which we hope will be reliable, and he informed me that meats, 
since 1895, had risen ninety-five per cent, and vegetable foods 
eighty-five per cent. Of course, if we want to take the price of 
nutmegs, meats and vegetables, and add them together and then 
divide by three, we will have a grotesque result which would not 
at all represent the true state of cffairs. That is what most of the 
compilers of index numbers are doing now. 

I hear the statement on every hand that no one can really dis- 
cover where the trouble is in this advanced cost of living. Most 
of us have the gold theory in our minds and attribute the advance 
in commodities to the increasing production of the yellow metal. 
Whatever the cause may be, the great question is : What is the cure 
and what is the final outcome? Personally I have an idea which 
I have not heard exploited, and that is that an equilibrium must be 
established in order to permit business enterprises which are not 
making a fair amount of money to have their share, and to take 
that share out of the pockets of those who are making an undue 
amount. 

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Influences Affecting Security Prices and Values 149 

Mr. Selwyn-Brown, in a letter which he recently prepared for 
me, entitled "The Beneficiaries of Advancing Prices," finds, by 
rather elaborate calculations, that the farmer, of course meaning 
the owner of a well-managed farm, is making from fifteen to twenty 
per cent, on his capital invested, and that farm land has risen at 
the rate of six and seven-tenths per cent, per annum since 1900. 
This, of course, adds to the profits of the owner of the farm. In 
my opinion, it would simplify the problems both of transportation 
and wages if a more equable distribution were accomplished. The 
great trouble is that the farmer, who is making the most money, is 
the one who would object most strenuously to an advance in traffic 
rates. It is not the desire of railroad corporations to keep down 
the wages of employees. It is a matter of necessity. They can- 
not continue to pay higher wages for the cost of producing trans- 
portation without receiving higher prices for that product, and if 
freight rates were made more flexible there would be little trouble 
as far as wages are concerned. 

Our miserable currency system is another thing which is liable 
to seriously affect values unless it is remedied. There are many 
theories on this subject. It has been talked over for years by every 
student, big or little, and each one has his own plan, not one of 
which appears to be reasonable. Contrasting our currency system 
with the methods employed in other countries, its rigidity appears 
outlandish. First we get conflagration, as in 1907; then inundation, 
as in 1908. 

Adverse legislation is given as one of the particular reasons 
for declines in the values of securities, but this in my opinion, is 
absurd. There is no intention on the part of serious-minded legis- 
lators to do anything but remedy evil. The very methods which are 
criticized are the methods which have reduced speculation and in- 
vestment to more or less of a science. The only kind of paternalism 
which is dangerous is ignorant paternalism. Even if some foolish 
legislator, backed up by a lot of foolish constituents, manages to get 
through a foolish law, such a law never endures. 

Having mentioned these particular influences affecting prices 
and values, I will touch briefly on the present outlook as to the 
security movements. In January of this year I asked a number of 
gentlemen, who are competent to pass opinions on the subject, to 
set down in parallel columns the good and bad factors bearing on 

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150 The Annals of the American Academy 

the situation. Charles A. Conant finds on the credit side of his 
ledger : The soundness of American enterprises ; the productive 
power of the country; judicial temper and open-mindedness of the 
national administration ; and on the debit side : High prices of con- 
modities ; manipulation of stock exchange, and the proposed restric- 
tions on investments. 

William C. Cornwall considers the good factors : The new 
wealth from the agricultural and mineral crops; the sound credit 
conditions ; the capability of the country to greatly expand business 
under favorable conditions. He considers the bad features as: 
Uncertainty as to Supreme Court decisions; proposed anti-trust 
legislation at Washington ; probable reaction in trade ; the result of 
the elections in England, leaving that country politically unsettled. 

John Coulter put the good features as : Prospective ease in 
money ; good railroad earnings ; good crop prospects ; business and 
trade expansion; elimination of vicious manipulation on the stock 
exchange ; increased foreign and domestic investment in securities ; 
continued economies in corporate operation ; the regulation of pool 
operations; and among the bad features he points to the attitude 
of the national administration toward corporations ; possible tight 
money later ; coming court decisions ; labor agitation ; our extensive 
imports, and fear. 

R. E. Edmondson, editor of the New York Financial Bulletin, 
among the good factors, points to the excellent crop conditions and 
prospects; favorable trade outlook; easier money; the probability 
of railroad rates advancing in the near future. On the other side 
of the question he mentions the high prices of commodities, the 
adverse legislation at Washington ; labor troubles. 

Frank Fayant refers to Mr. Taft's policies, and the fear of 
these policies, in the following words : "To be frightened by Mr. 
Taft's policies is hysteria. The President's attitude toward the 
business of the country has been repeatedly and emphatically stated 
by him in words that no one can misunderstand. Mr. Taft is a 
believer in the American big-business idea, and he believes that 
everyday wrongdoing should be punished. Mr. Taft's corporation 
policy, while perhaps displeasing to a few eminent financiers, will 
strengthen the American investment market, both here and abroad." 

Bert C. Forbes, of the New York Journal of Commerce, points 
to the world-wide ease in money; unparalleled acreage to be culti- 

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Influences Affecting Security Prices and Values 151 

vated this year ; harmony among our banking powers, the prospective 
advent of the farmer as an investor when new issues are regulated. 
Mr. Forbes also speaks of the housecleaning by the stock exchange ; 
the universal peace among leading powers ; the readjustment of 
securities to attractive income level, as good factors. On the other 
side of the question he selects the high cost of living; hostility to 
Wall Street ; extensive demands for new capital, here and abroad. 

Byron W. Holt places under the head of good factors : The 
unparalleled gold output, amounting to $450,000,000 a year, thus 
increasing our credit power by fully $1,200,000,000 a year, and 
resulting in rapidly rising prices of commodities and property. Mr. 
Holt also points to the great prosperity of land-owning farmers, due 
to high prices for both products and farm lands ; the excellent out- 
look for winter wheat ; the moderate rates for money ; the settlement 
of the English elections. On the side of bad factors he notes, first, 
high and rapidly rising prices ; probability of higher interest rates ; 
strike and labor troubles ; general discontent and demand for in- 
vestigation and reform. 

Maurice L. Muhleman, ex-assistant treasurer of the United 
States, points to the international peace ; friendly attitude toward 
American securities ; continuously large gold output ; confidence in 
President Taft's conservatism ; sound condition of banks ; the ease 
in rates for money, as the most prominent of the good factors. 
The deterrent factors he classifies as being the economic aspect 
of the British political situation ; the serious losses by floods in 
France; the high cost of living; the need of the government to 
borrow large sums to make up for deficits in its revenue. 

Arthur Selwyn-Brown points to the prospects of world-wide 
peace ; prosperous commercial outlook for leading industrial nations ; 
large harvests recently garnered in the world; unusually large 
volumes of savings in the banks. As adverse factors he mentions 
the discontent among the labor classes ; increase in commodity prices, 
and our declining exports. 

Carl Snyder, author of "American Railways as Investments," 
takes a rather blue view of the situation, and, to quote his own 
words : "Precisely, because the business outlook is good, it would 
seem as if the reverse must prove true. Otherwise prices would 
tend steadily downward. First, because the long rise invariably pre- 
cedes the full recovery, and because securities in the last half of 

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152 The Annals of the American Academy 

last year were very high. They are still high. Many of the poorer 
securities are selling for at least twice any actual, potential or 
prospective value they may possess." Mr. Snyder modifies his 
views somewhat by stating that in the former cycle there was no 
fundamental force like the present unparalleled gold production 
with an attendant depreciation of its purchasing power. This, of 
course, makes for higher prices. "Conceivably, for this reason, 
we may still see slightly higher prices than in 1906 before we reach 
the long downward turn. The prospect for this, . however, is dis- 
tinctly less favorable now than six months ago." 

S. V. White takes an optimistic stand, stating that all condi- 
tions of business and crops throughout the country are normally 
good, and there is no hysteria among the inhabitants of the country 
as distinguished from Wall Street and Wall Street markets. Mr. 
White emphasizes his remarks by saying, "This is America and the 
twentieth century." Under the head of bad factors Mr. White 
points out the unrest of the people over the price of foods. 

Many other views were given, but they were practically the 
same as those already offered, and to refer to them would result in 
unnecessary reiteration. It may be stated that the consensus of 
opinion is largely favorable to higher security prices in good times. 
One thing in particular characterized almost every report, and that 
was the mention of the high cost of living as a bad factor. And 
there we may look, as has already been stated, for the most im- 
portant problem we have to face. 

From the facts that I have at my command, and after a care- 
ful investigation of the underlying business situation, 1 see no 
occasion for alarm. I believe that the trouble we are now en- 
countering will be rapidly adjusted and a correct equilibrium 
established, without anything revolutionary in the re-establishment. 
We may have trouble now and then, but that is to be expected 
from one year to another. We have always had it in the past. 

George Paish, editor of the London Statist, and James Wright, 
of Mackay, Irons & Co., have both been in this country recently 
on a particular errand, to examine conditions and the prospects of 
our securities and security prices. I have had the pleasure of 
talking with both these gentlemen, and they feel very cheerful, and 
have so reported to their European followers. Mr. Paish shows, 
from very careful calculations, that the investments in American 

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Influences Affecting Security Prices and Values 153 

railroad securities alone, by Europe, amount to over £600,000,000. 
This is the greatest investment they have in any country, or any 
two countries, which is an evidence that they have confidence in the 
future of America. 

Almost every writer who follows the cycle theory is beginning 
to tell us now that we will have a panic in 19 12- 13. The very fact 
that there is such a consensus of opinion on that subject leads me 
to believe that we may escape the trouble. If our barometers are 
correct, we have plenty of time to reef our sails, and escape damage 
from the coming storm. Personally I held the same opinion a few 
months ago, that we would have trouble in 191 2- 13, but have 
modified my views as stated above. Panics usually come upon us 
as surprises, and seldom come when they are widely predicted. 

It goes without saying that the great and all-important factor 
affecting security values favorably is accretion. Improved methods 
of handling business, better management because of greater experi- 
ence, and, most particularly, the expansion of traffic because of in- 
creased population, are the things to which we must look for future 
values and prices. Fifteen years ago Atchison common sold at $3.50 
a share ; Baltimore & Ohio at $32.50 a share ; Canadian Pacific at 
$33 ; Chicago, Milwaukee & St. Paul at $53.87 a share ; Louisville 
& Nashville at $39; Northern Pacific at $2.50; Norfolk & Western 
at $1.25; Reading at $16.75; Southern Pacific at $16.34; Union 
Pacific at $4 a share, and so on through a long list of securities. The 
figures I have given are extreme low points, and to escape the 
accusation of unfairness I will give the figures on the same stocks 
ten years ago : 

In 1900, Atchison sold at about $19 ; Baltimore & Ohio at about 
$55 ; Canadian Pacific at about $85 ; Chicago, Milwaukee & St. Paul, 
$108; Louisville & Nashville at about $68; Northern Pacific at about 
$46; Norfolk & Western at about $23; Reading at about $15; 
Southern Pacific at about $30, and Union Pacific at about $45. The 
intending purchaser of any or all of the securities mentioned could 
have accomplished little by a resort to mere statistical showings. 
When these low prices prevailed, the synthetic view and the proper 
judging of the future was infinitely more important than the analytic 
view or the scrutiny of statistical exhibits — so it will continue for 
many years to come. 



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ECONOMIC CRISES AND STOCK SECURITY VALUES 



By Arthur Selwyn-Brown, M.A., Ph.D., 
New York City. 



The developments of modern science have conclusively shown 
that changes in nature are not brought about in direct, but always 
in indirect ways. All progress, and consequently, all motion, fol- 
lows a zigzag or cyclic path, rather than a straight one. In other 
words, the trial and error method, that is followed alike by nature 
and by man in the determination of changes, results in a complex 
of cyclic or periodic phenomena. Herbert Spencer was one of the 
first to emphasize the fact, that whenever there is a conflict of forces 
that are not in equilibrium, there will be rhythmic action engendered. 
But if the antagonistic forces are balanced at any one point, rest will 
be induced. A perfect balance of forces, or rest, hardly ever exists. 
Evolutionary developments are rhythmical, and, consequently, when 
mapped present spiral or periodic effects. There are always 
noticed advances and retardations, action and reaction, from which 
progressive epochs are differential resultants. A study of these 
phenomena enabled Spencer 1 to describe the law of organic and 
inorganic evolution as the ''change from an indefinite, incoherent 
homogeneity, to a definite, coherent heterogeneity, through con- 
tinuous differentiations and integrations." If we accept the evolu- 
tionary theory and its corollary that life is but a form, or a stage, of 
motion, we will have little difficulty in understanding the periodicity 
and other phenomena of commercial crises. These crises are the 
resultants of mental disturbances of social bodies, either local, 
national, or international. They affect a limited area like a town or 
nation, or are world-wide in their manifestations. In their larger 
aspects they are of celestial origin and accompany climatic changes. 
A study of their economic aspects, however, does not necessitate any 
reference to extra-mundane causes. 

Crises are essentially psychological phenomena. They result 
from fear, and mark the ends of reactions from periods of inflated 
prices and credits. They indicate the low swings of the evolutionary 

1 Herbert Spencer, "First Principles," Chapter XI. 

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Economic Crises and Stock Security Values 155 

pendulum during periods of price readjustment. Commercial crises 
are usually divided into two classes, each of which is again sub- 
divided. We may generally distinguish crises as belonging to one 
or other of the following divisions, although the dividing lines are 
not always clearly marked : 

1. Currency crises. 

(a) Congestion of the circulating medium. 

(b) Over-issue of paper currency. 

2. Capital crises. 

(a) Over-speculation. 

(b) Over-production and stocking. 

The main divisions are also commonly distinguished as finan- 
cial and over-production crises. The subdivisions mark the pre- 
dominant features of each crisis. When there is a financial crisis 
with strong evidence of an extensive circulation of bank notes, the 
crisis will be best classed as an over-paper issue financial crisis. 
When over-speculation, or over-production, are the predominant 
features of a panic, the crisis will be classed in a suitable subdivision 
of the second division. Each of the subdivided crises exhibits 
characteristics shared by all crises and some that are peculiar to its 
own class. 

During the interval between one commercial crisis and the 
next one the following cycle of business phases may be noticed : 
Depression, improvement, rapid improvement, general prosperity, 
excitement, over-trading, excessive speculation and company pro- 
motion, fear and apprehension, pressure to sell at lower rates, dull- 
ness, panic, and general business depression. These phases cor- 
respond with similar psychological features in public sentiment. 

Man is a social being. He loves company. Sociologists dis- 
tinguish four types of men: The austere, forceful, convivial, the 
rationally conscientious. W 7 henever a majority of any community 
is classifiable under one of these divisions, we have an austere 
people; a forceful, active people; a convivial people, fond of good 
living; or a conservative people. Most communities belong to the 
third type, and the people are easy-going and prone to suggestion 
and imitation. In all communities there are numbers of people 
who are naturally pessimistic, but who love to follow optimists. 
Now, crowd leaders, to be successful, must be active, forward, 
hopeful men. They must be optimists. The civilization of the 

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156 The Annals of the American Academy 

world has been and must continue to be developed and spread by 
optimistic and indomitable individuals. The pessimist rarely bene- 
fits mankind. When he does confer a benefit he usually does so 
in the form of criticism. 

The chronic pessimist is usually a mere dreamer or a nihilist 
or other destructor. His morbidity prevents him being a good 
constructor. The pioneers and leaders of business are strong 
optimists. They gather followers through suggestion, sympathy, 
and imitation. Their hopefulness leads to activity and their 
activity commands success. Their success is envied by others and 
their work and operations are imitated. They infect all beholders 
with their hopeful sentiments. Most men are moved more by 
sentiment than by judgment, by imitation rather than by thinking. 
Consequently impression and fascination always tend to inspire 
imitation. In speaking of public opinion HoltzendorrI well says 
that, 'The public opinion of the masses is not as a rule the result 
of careful investigation and sifting of facts. The ideas that little 
by little, as occasions arise, establish themselves in public opinion 
are produced by a great multitude of forces that are themselves 
the resultants of other conflicting forces. The social role of the 
instinct for imitation is important, not only in regulating the ex- 
ternal activities of society, the forms of social intercourse, and 
clothing, but also its opinions and beliefs. The majority of men 
in society readily imbibe and absorb their opinions from whatever 
sources most frequently and emphatically express them." 2 

Whenever the public opinion leaders in any given society be- 
come so active and hopeful as to compel all the members of their 
community to imitate their example, the businesses and industries 
of that community will reflect such psychological phenomena. 
There will be a great amount of trading and speculation while prices 
and trade records will soar to higher levels. Periods of inflation 
will be induced. Merchants will over-stock, manufacturers will 
over-produce, investors will over-speculate, and bankers will over- 
extend credit. But in time momentum will be lost. There will be 
a temporary dullness in trade. Later, some of the financial leaders 
in the community will observe that the commercial pendulum has 
reached its utmost limit in the upward beat, and is about to revert 
to a downward beat. They will then discount the future course 

2 Franz Holtzendorff, Oeffentliche Meinung, page 93. 

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Economic Crises and Stock Security Values 157 

of events by selling their goods or, when possible, selling short, 
or for future delivery. These transactions will as time progresses 
be followed by others, until sufficient momentum is established to 
give the swing of trade a pronounced downward trend. But a 
large proportion of men at first fight against changed conditions. 
They suffer losses, but hold on to their remaining stocks, hoping 
for business to improve again. Finally, prices decrease so much 
that panic seizes them and they run together and sacrifice their 
goods at whatever prices offer. Such activity usually precipitates 
a general commercial and financial panic. This explains how it 
comes about that every panic is preceded by some years of the most 
intense business activity and speculation, and is followed by periods 
of commercial stagnation and restricted credits. Then the cycle 
is repeated again endlessly. When the progress of the world over 
any long interval of time is plotted, the resulting curve will be 
found to present many irregular undulations and up-and-down 
movements indicating periods of action and reaction, of optimism 
and pessimism. But the movement will be a climbing one in the 
nature of a spiral. This is in accordance with the law of advance- 
ment in evolution that is generally described as the universal struggle 
toward perfection. 

Commercial crises have been experienced at comparatively 
regular periods since early historic times. The most noteworthy 
panics in recent times were experienced in Europe in 1701, 171 1, 
1721, 1731, 1742, 1752, 1763, 1773, 1783, 1793, 1804, 1815, 
1825, 1837, 1847, 1857, 1866, 1873, 1878, and 1890. In the United 
States, the most important panics occurred in 1812, 1818, 1825, 1837, 
1847, !857, 1869, 1873, 1877, 1884, 1890, 1893, 1903, and 1907. 

Various theories have been elaborated to explain the periodicity 
of commercial crises and panics. The two principal ones are those 
of J. S. Mill and W. S. Jevons. Mill's theory is that after the 
reverses in business caused by a crisis have warned commercial 
communities of the dangers arising from extravagance and unsound 
business methods, it requires a comparatively definite period for the 
losses to be made good, and the memory of their harmfulness to be 
modified. Mill held the opinion that the changes in mental atti- 
tudes of commercial communities toward business conditions and 
credit methods that occur in the interval between a crisis and the 
following boom period require a comparatively definite interval of 

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158 The Annals of the American Academy 

time for their accomplishments. It is a psychological phenomenon 
and can be measured by psychological methods. 

Jevons attempted, with doubtful success, to connect the perio- 
dicity of market phenomena with the periodicity of sunspots. He 
was of opinion that the periodical upheavals in the sun's atmos- 
phere signified extraordinary celestial heat changes which caused 
remarkable climatic disturbances on the earth, that, in turn, modi- 
fied the productiveness of agriculture and the pastoral industries 
on which so much of the world's trade is based. 

Strong objections can be raised to both Mill's and Jevons's 
theories. Neither is true. But each contains elements of the 
truth. Crises and booms mark the excesses of social communities 
in their financial and commercial transactions. They are the 
objective phenomena of psychological changes and correspond to 
the collective feelings of exhilaration and depression, optimism and 
despondency, freshness and fatigue of communities. Obviously 
no theory can be framed to measure accurately the interval between 
phenomena dependent upon such elusive matters as psychic states 
and sociological conditions of large communities. These are them- 
selves modified by a variety of circumstances and do not recur 
at any regular interval. Notwithstanding this, however crises and 
booms are always accompanied by certain well-defined financial 
and commercial phenomena, and by studying these their approaches 
can usually be ascertained well beforehand with a good degree of 
accuracy. 

Successful financial operations are invariably based upon 
accurate forecasts of the business outlook of the future. The 
truth of this is acknowledged by the writers on the stock markets 
who assert that prices always discount the future. The price 
fluctuations on all markets reflect business conditions, but, for 
general purposes, the variations on the stock exchanges, both in 
prices and transactions in stocks and bonds, afford the most sensitive 
and accurate barometers of commercial tendencies. Operations on 
the stock markets are very intimately connected with banking 
and commerce. The leading investors on the stock exchanges are 
among the largest bankers, corporation directors, and business men 
in the country. These men are in close touch with developments, 
not only with every portion of the country, but with Europe also. 
Through their agents and information bureaus, they are able to 

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Economic Crises and Stock Security Values 159 

watch every small change in corporation earnings and expenditures, 
crop values and prospects, political conditions, the state of monetary 
supply, prospects of tariff changes, domestic and foreign trade, com- 
mercial credit and other factors contributing to business stability. 
They are the first to see the cloud specks in the financial horizon 
that are the harbingers of the causes of the great cyclic price 
swings moving in unison with the long cycles in trade and industry 
between boom and panic periods. They are the great discounters 
of the future, and their operations in lowering the prices of their 
goods for sale, restricting their credits, calling their loans, selling 
out their stock securities, and restricting their business operations in 
times of general optimism, and their reversal of these operations 
in times of panic and depression, assist the reversal of the swing 
of the cyclic pendulum and contribute to the reversal of price 
changing tendencies. 

Confining attention to the effects of commercial crises on stock 
security prices, it should be first noted that a distinction should be 
made between price and value. The price of a stock is the money 
it will sell for, or can be bought for, at any particular time. It is 
generally influenced by the demand and supply, or commercial con- 
ditions, existing when a specific quotation is made. Value, on the 
other hand, relates to the quality of the stock for income-producing 
purposes. It depends on the substantialness of the security, its 
future prospects, class of business done by the corporation, char- 
acter of the management, and the rate of return as compared with 
the average yield of high-class securities. The intrinsic value and 
market price of any particular stock exchange security are often 
very far apart, and it is upon a proper recognition of this that 
many successful financial men and bankers found their wealth. It 
should be borne in mind, also, that stock exchange panics do not 
cause commercial crises as is popularly assumed. All such crises 
are accompanied by depressed stock prices ; but the depreciation in 
values is a concomitant of crises, not a cause. The fall in stock 
prices on the New York stock exchange in October, 1907, com- 
menced a few days before the suspension of payments by the banks, 
but did not cause such suspensions. The crisis was largely brought 
on by over-speculation, credit abuses, and currency inflations in 
1905 and 1906. The panics on the stock exchanges of the United 
States in October and November, 1907, indicated the extremities 

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160 The Annals of the American Academy 

of the downward movement of the price pendulum from its ex- 
treme upward movements in September and October, 1906. 

Business progresses in regular cycles that run in the following 
order: (1) Trade and financial depression, money in plentiful sup- 
ply at low rates; (2) increased commercial activities, money in 
better demand; (3) money surpluses commencing to diminish; a 
more optimistic sentiment prevails in business circles, new com- 
mercial undertakings are planned; (4) labor is in good demand, all 
the manufacturing and transportation companies report their plants 
are in full operation, there is a good demand for loans at rising 
rates, the proportion of banking reserve to liabilities diminishes 
rapidly; (5) there is a mania for speculation in lands and stocks, 
much public and private extravagance, the banks are over-extended 
and in a very weakened condition, company promotion is rampant; 
(6) bankers become apprehensive, call loans, restrict credit, realize 
on securities, and call a halt in business expansion; (7) there is 
a period of dullness, then a panic, followed by a depression. The 
cycle is then repeated. 

The passage of commercial conditions from a crisis and panic 
to the top of its succeeding boom is measured by statistics re- 
lating to : ( 1 ) Banking, showing proportion of reserve to liabilities, 
nature of transactions, number of transactions, circulation, loans, 
clearings, and money rates; (2) customs returns, showing imports 
and exports; (3) agricultural returns, showing area under crops and 
estimated yields; (4) wholesale business, showing amount of trade 
done by leading wholesale and manufacturing firms, particularly those 
of the textile, woolen and hardware houses. Their transactions indi- 
cate views of the business outlook for the immediate future held by 
retail firms throughout the country; (5) building and real estate 
activities; these always give greater figures nearer the top of a 
boom; (6) commercial credit, as shown by the number of cases of in- 
solvency and bankruptcy, and sums involved; (7) labor conditions, 
showing unemployment and emigration movements; (8) railroad 
conditions, particularly traffic returns, earnings, dividends, number 
of idle cars, condition of tracks and rolling stock; (9) commodity 
price movements, as shown by index numbers; (10) stock exchange 
transactions, including the number of stocks and bonds sold daily, 
average price changes, and new securities listed; (11) foreign 
money rates and business returns. 

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Economic Crises and Stock Security Values 161 

The development of international commerce in recent years 
has been enormous. In consequence of this, the commercial con- 
ditions in each country are reflected in others in a greater or less 
degree, depending on the relationship of the commercial com- 
munities of each. All large merchants and investors, for this 
reason, keep well posted in foreign news. 

Speculation in all forms is the result of foresight, and early 
appreciation of coming changes. Successful speculation is rarely 
the result of chance. It is generally based on a thorough knowl- 
edge of financial and commercial conditions. The financiers who 
manage large campaigns on the stock markets plan their campaigns 
as carefully as generals of armies before engaging in a war, or of 
railroad corporations before committing themselves to the building 
of expensive engineering works. The advice of prominent bankers 
and merchants is always sought. The fullest statistical data relat- 
ing to the subjects given above are collected and tabulated by 
trained statisticians. Upon a study of these data stock market 
operations are planned. When fundamental business conditions 
are healthy, stocks and bonds are purchased; when conditions are 
unsound, stocks are sold short in anticipation of lower prices. It is in 
consequence of the great amount of study the leading financial 
authorities give to fundamental business transactions and the un- 
erring manner in which their conclusions are reflected upon the 
world's stock markets, that the stock markets have become such sen- 
sitive and accurate barometers of commercial and financial condi- 
tions. It is also through a lack of understanding of these intimate 
relations between stock prices and the opinions of commercial 
leaders of coming business changes, and of the tendency of stock 
movements to discount the future, that the public forms wrong 
conclusions regarding the importance and value of stock exchange 
operations. This popular misunderstanding of the causes of the 
sensitiveness of stock exchange movements, also, is responsible for 
the popular illusion that leads to the belief that rapid and exten- 
sive variations in stock prices induce commercial and financial 
booms and crises. 

When the average prices of representative stocks actively 
traded in on the stock exchange are taken for a series of years 
and plotted, it will be noticed that the curves advance and decline 

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162 The Annals of the American Academy 

in a comparatively symmetrical manner. Usually each year a de- 
cline will be observed in January or February. This will be 
followed by a strong spring rise, and a fall in October, November 
or December. The spring rise anticipates the crop returns, and 
the strength of the rise is dependent upon general commercial, finan- 
cial and climatic conditions, and the outlook and value of the crops. 
When the harvests are good, and money is in good supply, the 
spring rise in stock prices is often continued into the summer. 
But if the crops are poor, and money rates are high, the stock 
markets react in summer. 

In the fall months, money is required by the agriculturists 
in large quantities for wages and other expenses. Money rates 
are usually high at this time. A certain number of security 
holders are always compelled to realize on them whenever money 
is in short supply. This selling lowers prices, and induces what 
are known as the fall market reactions. These price movements 
are greater in stocks than in bonds. It is largely through money 
movements from the cities to the agricultural districts causing 
monetary stringencies that the greatest declines and panic- on the 
stock exchanges occur in the early summer or late fall months. 
Favorable crop outlooks generally cause the greatest activity on the 
stock exchanges, and booms in business, to occur on the top of a 
spring rise in prices. When prices have steadily risen for several 
years, and in spring, transactions on the stock exchanges reach 
extraordinary figures, banking returns show greatly extended 
credits and poor reserves, foreign imports are much greater than 
exports, and investors exhibit a speculative frenzy ; there is a strong 
probability that the upward swing of the price pendulum is cul- 
minating, and that a sharp decline of from fifteen to twenty per 
cent, in stock prices is at hand. The main trend of prices will 
continue downward, excepting for repeated rallies, until in a year 
or two a panic will ensue that will cause prices to fall so low that 
new investment buying on a large scale will be induced by the 
bargains offered. This will stop the downward momentum of the 
pendulum and cause it to change its beat. Such great stock 
exchange panics generally accompany general commercial crises. 
There is usually no exact correspondence between the average rise 
and fall between a series of cycles in trade. The low prices of 

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Economic Crises and Stock Security Values 163 

stocks during commercial crises have a higher average value, as a 
rule, than those of preceding crises. The same is true of the 
average of prices in boom periods. There is everywhere a tendency 
for prices to seek higher levels. All prices rise proportionately 
with the advancement of civilization and social well-being, and in 
correspondence with the growth of wealth. 



(64s) 



RAILROAD STOCKS AS INVESTMENTS 



By Carl Snyder, 
Author of "American Railways as Investments," New York. 



The ideal investment, it is needless to say, is that which 
represents a maximum return with a minimum of risk. This, I 
believe, is at the present time, and probably will be for some time 
to come, represented by stocks in the solider railway companies. 
It is true that industrial and some other securities yield, on the 
average, a higher interest return, but this, as is usually true, is 
offset by a correspondingly greater risk. This is not losing sight 
of the fact that in recent times some industrial stocks, especially 
the preferred stocks in some of the larger corporations, have offered 
a return both high and uninterrupted. But it is to be recalled that 
even the best of the industrials are of comparatively recent origin 
and that the larger part of the industrial securities now on the 
market have come into existence in a period which has been for 
this country, and for the world generally, one of almost uninter- 
rupted prosperity. A continuum of such prosperity it would be 
folly to expect. In a large way the seven fat and the seven lean 
years have alternated since the beginning of trade. The most of 
our industrials have yet to undergo a prolonged period of de- 
pression, such as this country saw from 1893 to 1897 and from 
1873 to 1877. 

On the other hand, some of our larger railway systems have 
passed through both of these periods unscathed, and at least one 
of these systems, the Pennsylvania, has been continuously paying 
dividends on its stock for upward of sixty years. In the depres- 
sion of 1893-97 nearly one-third of the railway mileage of the 
country passed into the hands of the receivers, including great 
systems like the Reading, the Baltimore & Ohio, Erie, Southern 
Railway (Richmond Terminal), the Wabash, Union Pacific, 
Northern Pacific and the Atchison. This was an appalling list of 
failures, and should not lightly be forgotten. But it is to be re- 
marked that the depression of 1893 followed the great era of rail- 

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Railroad Stocks as Investments 165 

road expansion in America, which came in a period of long and 
unbounded prosperity, almost identical to that which we have 
witnessed within the last twelve or thirteen years. It was almost 
inevitable that such a period must have involved overbuilding and 
expansion beyond the resources of the country. 

It is scarcely probable that the next period of depression will 
involve our railways to an equal extent. Practically without excep- 
tion these failures represented a great scandal, a history of dis- 
graceful stock watering or stock jobbing, and a shame to Amer- 
ican railroading. Four of these failures were, in fact, due to the 
evil influence and criminal practices of one man. Our railway 
managers have learned well in the dear school of experience, and 
it is a notable fact that several of these systems, which a few years 
ago were in the hands of receivers, are to-day among the solidest 
and best-managed properties in the country and better able than 
many others to weather a storm. 

In the terse language of the street, our railways "have had 
theirs." Our industrials have not. This is an item to consider. 

Moreover, the country has now grown up to its railways, so 
that in the past ten years there has been a comparatively slight 
expansion of actual mileage, and especially in the West where the 
last depression was most severely felt, business and trade are in 
a far better position than twenty years ago. Still further, as 
will be seen, present economic tendencies are in the direction of 
strengthening precisely the section which then presented the greatest 
weakness. It seems altogether probable, so far as it is humanly 
possible to forecast the future, that our railways present on the 
whole the safest of the larger fields of investment. 

It is to be noted, also, that railway stocks have tended, 
especially within the past ten years, to pass more into the hands of 
the smaller investors. A rather unsatisfactory census of railway 
shareholders made a few years ago showed between three and four 
hundred thousand names. The Pennsylvania Railroad, for example, 
alone has upward of fifty or sixty thousand stockholders, nearly 
one-half of whom are women. This census probably by no means 
represented the actual figures, many of the shares being held by 
brokers or trustees for a number of individuals. It is likely that, 
all told, the railways belong to upward of half a million active 
owners, and if to this be added the number of individual bond- 

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166 The Annals of the American Academy 

holders, this figure would probably lie between one and two 
millions. 

This is a remarkable showing, and with this growth has come 
a far larger sense of responsibility on the part of railway managers 
toward the investing public. Dishonesty has been largely, though 
not wholly, eliminated, and our railways are, for at least the larger 
part, exceptionally well and conservatively managed properties. So 
great is the present volume of railway securities, amounting now 
to fourteen or fifteen billions, that it would be a national menace 
as well as a national disgrace if the facts were other than as here 
represented. 

Accepting, then, that railway shares present a relatively high 
degree of security, we may ask as to the return. Nominally the 
return is not high. Railway shares fluctuate widely in value, but 
taken year in and year out it may be said that the total of railway 
shares now on the market sell for somewhere near their nominal, 
or par, value. The average return on the better class of railway 
bonds is not much over 4 per cent., and the average dividend on 
the shares is rather less than this. 

But this situation is brought about by the fact that a con- 
siderable proportion of the shares bears no dividends, yet these 
non-dividend shares command ordinarily an absurd and usually 
entirely fictitious price, ranging from twenty to fifty dollars per 
share and even more. Actually the return on solid and seasoned 
dividend-paying shares has ranged within the last few years around 
an average of from 4^ to 5 per cent. In the panic of 1907 the 
average dividend on twenty standard shares was a little over 7 per 
cent. When stocks rule very high, as in 1906, this average may 
fall considerably below 4 per cent. 

This wide variation in actual return, and in the price of se- 
curities, was unaccompanied by any corresponding variation in the 
actual value of the properties. The panic of 1907 was not fol- 
lowed by prolonged depression; it seemed rather a financial and 
banking spasm than a broad economic crisis, and the recovery 
therefrom was correspondingly rapid. Only a few badly managed 
and badly financed properties actually went into the hands of the 
sheriff, and comparatively few dividends had to be reduced. Some 
of the reductions, likewise, represented rather commendable caution 
than actual necessity. It is precisely because of these wide fluctua- 

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Railroad Stocks as Investments 167 

tions, which are recurrent and in a vague way periodic, that the 
railway shares in their present solid position represent an especially 
inviting field to those who are willing to give to their investing 
a little careful consideration and forethought. 

Below is given a list of a dozen of the best railway shares 
with their wider fluctuations within the past ten years. Beginning 
from a relatively low level it will be noted that within this period 
there have been three broad "swings" : a noteworthy rise extending 
into 1902, followed by a correspondingly heavy fall; then another 
prolonged rise to near the close of 1906, followed by another slump 
culminating in the late panic; and, finally, a third rise extending to 
the fall of 1909. Individually, the variations in price were as 
follows : 

Low. High. Low. High. Low. High. 

1900. 1902. 1903-4. 1905-6. 1907-8. 1909. 

N. Y. & New Haven ... 207 

New York Central .... 125 

Pennsylvania . . 124 

Reading 15 

Lackawanna 171 

C. & N. W 150 

St. Paul 108 

Illinois Central no 

Louis. & Nash 68 

Atchison 18 

Union Pacific 44 

Great Northern J44 



255 


185 


216 


127 


174 


168 


112 


167 


89 


147 


I/O 


no 


148 


103 


151 


78 


37 


164 


70 


173 


297 


230 


560 


369 


680 


271 


153 


249 


*I26 


198 


198 


133 


199 


*93 


it 6 


173 


125 


184 


116 


162 


159 


95 


157 


85 


162 


96 


54 


no 


66 


125 


133 


65 


195 


100 


219 


203 


160 


348 


x i07 


157 



Average 107 191 121 224 122 209 

It will be seen that these twelve standard securities rose in 
two years from an average value of $107 per share to $191 per 
share, then declined within a year to an average of $121 per share; 
then rose again in eighteen months to almost double this figure ; 
that they declined in the panic to $122 per share and then recovered 
within less than two years to an average of $209 per share. 

Taken as a whole, there was throughout these ten years a 
tendency toward a steady increase in dividends, which was further 
enhanced by the frequent issue of ''rights" to the purchase of 
stock at much below the market figure. It is evident, then, that 

a Ex. valuable "rights." 

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1 68 The Annals of the American Academy 

in spite of these wide fluctuations even the more careless of in- 
vestors, buying, as is the habit of careless investors, when prices 
have risen and are generally high and enthusiasm at a maximum, 
would have suffered no very serious loss. On the contrary, they 
would have done fairly well. To the more cool-headed investor 
who abstained from purchasing when the outlook was most roseate 
and enthusiasm rife, and who had the courage, for it takes courage, 
to buy when the sky was blackest and the nerves of the strongest 
were shaken, these very fluctuations offered a great opportunity. 
Had he, further, pursued a consistent policy of selling out his stocks 
after a long rise, and repurchased them only after a long fall, his 
reward would have been large. 

Simple as such a plan may appear, it is evident that there are 
few who are able to follow it. If there were many the opportunity 
would not exist. In point of fact, it seems human nature to 
believe that when stocks have gone down they will "go further," 
and, correspondingly, that when they have had a great rise they 
will "go higher." If it were not for this human infirmity Wall 
Street would not bear the evil reputation that in many quarters it 
does and parenthetically, it would scarcely exist. The business 
of "Wall Street," that is, of the men who make a business of buying 
and selling stocks, is to get them as cheaply as possible and 
market them at the highest figure obtainable. It is a common im- 
pression that these "kings of Wall Street" pile up in this process 
enormous fortunes and that the toll they thus exact is heavy. 
Neither idea is particularly true. The number of fortunes that 
have been made solely or chiefly through speculation in Wall Street 
is amazingly small. These men, whose names are fairly well known, 
often make enormous winnings, but they also endure heavy losses. 
They are gamblers, and not merchants. 

Another prevalent idea is that the rise and fall of Wall Street 
prices is fairly regular. The figures given above, for the last ten 
years, would readily give support to this belief. In reality it is 
quite unfounded. A still more inveterate notion is that the "bull," 
or buyer for the rise, always has the best of it — that is, that the 
general tendency of prices through a long period is to higher and 
higher levels. 

There is absolutely nothing in the course of stock prices within 
the last forty years to sustain this view. But few of the stocks 

(650) 



Railroad Stocks as Investments 169 

in the current lists go much back of this, but this was probably 
equally true in the previous forty years. 

It will be well for the investor to fix the facts firmly in his 
mind. Since 1870 the United States have enjoyed a period unin- 
terrupted by any serious disturbing influences, like the Civil War. 
Beginning, then, from this time, there have been one short and one 
very long interval of rising prices ; one short and one very long 
period of falling prices. Following the outburst of activity and 
speculation at the close of the Civil War, prices in 1870 were at a 
relatively high level. There followed seven years of drastic decline, 
culminating, not in the panic of 1873, but four years later. Then 
came, from 1877 to 1881, the most remarkable rise in values which 
this country ever saw. In this brief time Dun's standard list of 
sixty rails showed a rise of over 400 per cent, on the average. 
From the high level reached in 1881 stocks underwent a long, 
irregular decline, reaching bottom in the panic of 1893, and then, 
after a brief rebound, falling again to the same levels in 189(3 — that 
is, through a period of fifteen years. They did not again reach the 
high levels of 1881 until an even twenty years thereafter. Then 
from 1896 ensued the long rise which reached its highest point in 
1906, though on the rebound from the recent panic stocks reached 
in August, 1909, very near the same high level, some, as is always 
the case, going much higher than in 1906, while others had nothing 
like such a rise. Counting to the latter date, the last period of rising 
and high prices has extended over thirteen years. 

It will be seen, therefore, that the periods of rise and the 
periods of fall were about equally balanced, and that in point of time, 
the chronic "bull" and the chronic "bear" would have fared about 
equally well. The lesson is fairly obvious. 

The most interesting thing about this showing is that the 
shorter but heaviest rise followed the shorter but heaviest fall, 
and the long fall was followed by a rising period of nearly equal 
length. And just as the fall from 1881 to 1896 was nothing like 
so heavy as from 1870 to 1877, so the rise from 1896 to 1909 was 
nothing like so heavy as the rise from 1877 to 1881 — roughly, about 
200 per cent., as against 400 per cent, in 1881. 

Definitively, then, there is no such thing as a "cycle" in stock 
prices, no way of mechanically forecasting the future. The 
"twenty-year period" of business activity marked by the prolonged 

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170 The Annals of the American Academy 

disturbances of 1837 and 1857 was rudely broken by the panic of 
1873. It seemed re-established in the period culminating in the 
panic of 1893, only to be broken again by the panic of 1907. 

The intelligent investor, looking not only to fixed and nominal 
return from dividends, but likewise toward possible profits from 
buying when stocks have had a prolonged fall and selling them 
again after a prolonged rise, will study, rather, the underlying 
conditions. These are by no means easy to discern, but in looking 
back over the period under view it will be found that there was at 
least one factor so prominent that it might almost be called pre- 
dominating. That is the course of commodity prices. Following 
the high prices which obtained after the Civil War, which reached 
their apex in about 1866, there was a long and violent fall extending 
to about 1877, then an equally violent rebound running into the 
early eighties, but very short-lived. From the end of 1882 to the 
end of 1896 commodity prices showed an almost uninterrupted 
fall, which was especially violent in the eight years following 1888. 
Then came an equally sharp rebound to about 1902, and it has since 
continued, though very slowly, upward. It is extremely instructive 
to note that, in a broad way, prices of standard rails tended to 
follow much the same course. 

If now we look into the fundamental conditions determining the 
cost of commodity prices, we shall note that, broadly, these fluctu- 
ations were world-wide, and, roughly speaking, this can only reflect 
changes in the relative volume of the world's money. The quantity 
theory of money is not to be taken without reserve, but it is certainly 
very striking that in the period following the Civil War the nations 
tended more and more toward the adoption of a gold standard, 
while the world's production of gold tended rather to decline. A 
general appreciation of the exchange value of gold seemed almost 
inevitable. Then, beginning in the early nineties, while few new 
nations were added to the gold standard users, the production of gold 
began to rise by leaps and bounds. From an average production 
of not much over a hundred millions per year it has risen to well 
over $400,000,000 in the last three or four years. 

The result has been an increase in the known and visible stock 
of the world's gold money (though by no means of the world's 
currency as a whole) by at least 50 or 60 per cent, in ten or twelve 
years. With no very marked increase in the demand, there has 

(652) 



Railroad Stocks as Investments 171 

been an enormous increase in the supply. It seems almost inevit- 
able then that the exchange value of gold should fall, and, conse- 
quently, that the nominal price of commodities should rise. 

It would be absurd to consider this factor alone in the future 
of commodity prices, and hence on the theory here developed, of the 
prices of railway shares. But if the production of gold should 
continue in the same heavy volume, and, still more, if it should 
show a further increase, it seems almost inevitable that commodity 
prices would rise further and hence, though probably not in the 
same degree, that railway shares would tend to high prices. 

It is further to be observed that commodity prices in the 
sixties continued to rise long after gold production had begun to fall 
sharply ; and, correspondingly, commodity prices continued to fall in 
the early nineties after gold production had more than doubled. 
In other words, it seems as if the effect continues long after the 
cause has ceased to operate. It seems, then, as if we may fairly 
anticipate that commodity prices will continue to rise for a number 
of years, even though the production of gold should fall off. And 
on the same reasoning it seems as if we might expect that the prices 
of shares would, in the absence of any decisive change in condi- 
tions, likewise tend to maintain, or return to, high levels. 

But if all this should prove true, it is very likely that share 
prices would continue to show something of the same violent 
fluctuations that they have in the last eight or ten years. This 
seems to follow inevitably from a rapidly augmenting and, at the 
same time, depreciating currency. A depreciating currency means 
a corresponding rise in the nominal value of all kinds of real 
property, which tends naturally to promote the gambling mania, 
and especially ] and speculation and the like. The result is land 
booms and wild building" booms such as preceded the panic of 
1907 and were again in full blast by the end of 1909. In other 
words, crises and panics tend to be violent and recurrent, but 
short-lived. 

If, then, present underlying conditions should not vitally alter, 
the intelligent investor may buy stocks in full confidence after a 
violent fall, with the pretty certain assurance that we shall not, for 
a time at least, see a return of the prolonged depression in values 
such as was characteristic of the decades prior to the present. 
The prophets of an economic crisis in 1913 are of the machine 

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172 The Annals of the American Academy 

variety who seem to endeavor to pantagraph the future from the 
past. 

On the other hand, if the reasoning here employed be sound, 
it seems likely that the intelligent investor may, after a long rise, 
part with his stocks at good profit in fair confidence that he will be 
able to get them back in a year or two at much lower levels. 

What should he buy? The maximum of safety, it is hardly 
needful to remark, is in the standard dividend-paying rails. It 
is nevertheless a curious and somewhat discreditable fact that there 
is a far wider fluctuation, with an almost irreducible minimum, in 
the more worthless class of non-dividend common shares, like the 
common shares in fantastically over-capitalized companies such as 
the Erie, Southern Railway, Wabash, Rock Island and their like. 
What is still more curious is an almost greater element of safety. 
There seems to be among these "cats and dogs" almost a lower limit 
to their price. Even with the apparently certain prospect of a re- 
ceivership in 1908, Erie common still sold for $12 a share. Of 
course, in actual receiverships this minimum may be very much 
reduced. But even within the year Erie common was selling for 
$36 per share — a rise of 200 per cent. 

What is still more curious, these for the most part valueless 
securities may generally be purchased much nearer the bottom and 
sold much nearer the top than the high-priced dividend-payers. 
The reason for this is that in a long slump they continue their 
decline for some time after the high-priced rails have reached rock- 
bottom, and, conversely, they generally continue their rise for some 
time after the high-priced rails have reached their apex price. It 
used to be, indeed, a by-word that great activity in Erie after a 
long rise was a signal that the show was over. 

The explanation for this paradoxical condition involves a 
curious bit of psychology. Apparently the first comers, when Wall 
Street drums are beating and its flags flying, is a fairly solid invest- 
ment class, who, while they usually pay high prices for their pur- 
chases, take the stocks home and put them away. Following these 
will be a class of Doubting Thomases, most firmly convinced at the 
eleventh hour, but tending to confound cheapness with price per 
share. They will look askance at Union Pacific at $200 per share 
and paying 5 per cent, solidly at this figure, but they will pay $40 
or $50 per share for another stock that is paying nothing and with 

(654) 



Railroad Stocks as Investments 173 

little prospects of ever paying anything, save in the minds of the 
boomers of the Street. 

When now a stringency comes or fright ensues, the stocks for 
which there is always a market at some price are the high-priced 
rails, and it is these which are usually the first to be thrown over- 
board. A large operator who could not sell a large line of Southern 
Railway common without absolutely smashing the market in that 
stuff could probably sell twenty or forty times as much Union 
Pacific on a sacrifice of five or ten points. So it is that the low- 
priced stocks generally trail after the better class both in the rise 
and in the fall. 

But even among the standard securities it will be noted that 
after a long fall some stocks will rise much higher and more rapidly 
than others. Thus, for example, in the recovery from the last panic 
Southern Pacific, Union Pacific, Atchison and Reading rose from 
100 to 150 per cent., while solid, well-managed stocks like Northern 
Pacific, Great Northern, Pennsylvania and Chicago & Northwestern 
rose only about 50 or 60 per cent. It will be asked, how is one to 
discriminate? 

Practically speaking, for the average individual there is no 
possible way. Values often have little weight. The percentage of 
rise and fall in a given stock depends largely on the activity and 
financial position of the people who are ordinarily its heaviest 
holders. Or, again, in the hands of a clever manipulator, a stock 
may be put through great paces, as recently in the rise of a well- 
known railway stock from a little over $20 per share following the 
panic to over $90 a share a year and a half later. 

There is one admirable rule, and that is to put your eggs in 
as many baskets as possible. It is far better to have ten shares 
each in ten stocks than 100 shares in one stock. If the amount 
to be invested can be divided by twenty it is still better. Then if 
any "sky-rocketing" of a stock is to go on, one at least stands a 
chance of participating a little, while the element of risk from un- 
expected developments or disasters in a single property is cor- 
respondingly reduced. 

Inside information is, as a rule, the most misleading that can 
be had, and is almost invariably distributed at the wrong time. 
There is one simple method of determining the general attitude of 
the managers of a property toward their own stock, and that is by 

(65s) 



174 The Annals of the American Academy 

noting the percentage of gross earnings applied to maintenance. 
These figures are reported to the Interstate Commerce Commission 
and are printed from month to month by most of the financial 
journals. 

For the rest, if the predominating influences which determine 
the general course of stock prices have here been correctly gauged, 
it follows that if we are to see a still further rise in commodity 
prices and a corresponding rise in the value of real property, in 
other words, a still further depreciation in the purchasing power of 
the dollar, the railway companies which will derive the most benefit 
will be those which have large outside possessions in farm lands, 
coal properties, timber, iron ore and the like. For this reason it 
seems almost a certainty that, other conditions being equal, stocks 
like the Canadian Pacific, Northern Pacific, Great Northern, South- 
ern Pacific, Reading, Lackawanna, Lehigh and the like should in the 
next ten years undergo a much greater appreciation in price than 
those of companies doing a simple, common carrier business. 

This suggestion should not, however, imply the purchase of 
these stocks at high prices, for there is no reason whatever to sup- 
pose that they should be any less subject to wide fluctuations than 
other stocks. On the contrary, precisely because their speculative 
possibilities are likely to attract purchasers, thus creating a broad 
market for the manipulators and professional boomers, they are 
likely to undergo perhaps even heavier slumps than stocks whose 
value is more easily calculable, and which therefore lend themselves 
less to rainbow prophecies. 



(656) 



ELECTRIC RAILWAY STOCKS 



By Wallace McCook Cunningham, 
Instructor in Commerce, University of Pennsylvania, Philadelphia. 



The 1909 edition of "American Street Railway Investments" 
reports that the total amount of capital stock of electric railway 
companies outstanding then was $2,444,892,057; the funded debt, 
$2,112,244,086; a total of $4,557,136,143. By far the greater part 
of the stock — almost nine-tenths of it, in fact — is common stock. 

It is impossible to obtain accurate information as to the total 
amount actually invested in construction and equipment. The item 
"cost of construction," as carried on the books and balance sheets, 
gives, in most cases, no idea whatever of the cash investment. 
Even the real cost of construction or cash investment is not a 
proper measure of stock values either present or future. It is 
merely a matter of academic interest. It would not show even 
the "physical valuation" now harped upon particularly in discus- 
sions of city lines, and still less would it show the "cost of dupli- 
cation" or the "value as a going concern," the latter of which is, 
of course, the absolutely fundamental point. The intent of this 
article is to give merely the most important general tendencies 
affecting stock values of the different types of electric railways 
and likely to affect them in the future, treating of the history of the 
past investment and capitalization only as it may throw light upon 
the present and the future. Smaller details and statistics cannot, 
as a rule, be given in the limited space allowed, nor can applica- 
tion of the general principles and influences be made to individual 
properties. 

City Lines 

The capitalization of city street car lines is in large part the 
result of evolution, representing in most cities, in addition to cost 
of construction, the legitimate but enormous cost of substituting 
the cable for the horse car. and electricity for the cable; the re- 
placement of 18-foot cars by others 25 feet, then 30, 40 and 50 
feet in length, and these improvements in turn necessitating 60- 

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176 The Annals of the American Academy 

instead of 40-pound rails, and then rails of 80, 100, 120 and even 
140 pounds, and similar rapid displacement of power-house ma- 
chinery, often when still good. Such increases in capitalization 
represented the betterments needed for the service of the public, 
though now the demands for the reduction of dividends and interest 
charges to the basis of return on a "physical valuation" would 
reject them as illegitimate. Much of the capitalization was, of 
course, water, having been freely thrown in during various con- 
solidations and reorganizations, and making still heavier the burden 
of fixed charges and dividends. 

It was thought by many that the steady growth of the cities 
and the natural proportionately greater increase in rides per capita, 
together with the marked economies due to the physical improve- 
ments and consolidations, would enable the companies to meet 
readily the increased fixed charges and to continue and even to 
increase the dividends. 

These high hopes, however, have not in the main been realized, 
as an examination of the market quotations of the stock will reveal. 
In many cases, in fact, these have suffered severe declines from 
the figures established seven or eight years ago, when hopes were 
high and speculation rife. 

For example, comparing the quotations of 1902 with those of 
1909, we find that the Boston Elevated, with a continuous dividend 
of 6 per cent., has shown some decline, the high for 1902 being 
173^ and the low 149^2, and 1909, high, 135; low, 124^. Brook- 
lyn Rapid Transit, 1902, high, 78 ; low, 54^ ; dividend, o, and 
1909, high, 82^ ; low, 6j ; dividend, 3, shows that the increased 
dividend had been largely discounted seven years before its declara- 
tion. Chicago Union Traction, 1902, high, 23 ; low, 10% J divi- 
dend, o, and 1909, high, 7 ; low, 3^2 ; dividend, o, has steadily 
declined. The Cleveland lines, previously capitalized more con- 
servatively than those of most other cities, show clearly the possi- 
bilities of "physical valuation" and lower-fare political agitation. 
The 4 per cent, dividend has disappeared, and the decline is well 
represented by the scaling down of the stock in exchanging Cleveland 
Electric for Cleveland Railway, the ratio having been 100 to 55. 
The Detroit United, in spite of owning some excellent interurbans, 
has, because of somewhat similar conditions, been forced to pass its 
4 per cent, dividend, and shows a high of 97 and low of 75 for 

(658) 



Electric Railway Stocks 177 

1902, as against a high of 72 and a low of 56 for 1909. Inter- 
borough-Metropolitan shows the usual downward drift, while Phila- 
delphia Rapid Transit, a particularly gross case of overcapitaliza- 
tion, the underlying securities alone representing a much greater 
capitalization than the whole road should have, shows but a small 
increase in spite of the continual increase in the amount "paid 
in" from $5 in 1902 to $50 in 1909. Seattle Electric, 1902, 
high, Syy 2 - r low, 58; dividend, o, and 1909, high, 117^2; low, 
90^ ; dividend, 7^2, shows the effect of the usually efficient 
Stone and Webster management and the remarkable growth of 
Seattle in overcoming the effects of basic tendencies. Toledo 
Railways and Light, 1902, high, 38; low, 32^; dividend, o, 
and 1909, high, 13%; low, 7; dividend, o, shows merely the drift 
of general tendencies, which, however, usually affect lines in cities. 
the size of Toledo less severely than those of larger cities. Twin 
City Transit, 1902, high, 129; low, 107; dividend, 5 per cent., and 
1909, high, 116%; low, 97, shows but small decline and has con- 
tinuously maintained the 5 per cent, dividend. The list could be 
greatly enlarged, but the showing would still be that of the same 
general downward drift, with an exception here and there of sta- 
bility, or even a raise in market quotations, owing to some unusual 
or special local conditions. 

Prices of material and labor have been rising, tending to make 
the sort of ride formerly furnished cost more than before, while 
the ride itself is longer and the accommodations better. And, worst 
of all, the short journey in a lightweight horse car, drawn slowly 
upon a light, cheap track, was paid for by the five cents of those 
days, with its much greater purchasing power, yet the tendency of 
late years has been to decrease the fare paid more and more below 
the traditional five cents, even though this is itself steadily depre- 
ciating in purchasing power. 

The problems confronting city lines are admirably stated by a 
number of eminent and successful street railway men in the January 
1, 19 10, issue of the Electric Railway Journal, under the title, "Elec- 
tric Railway Situation ; a Review of the Problems of the Year." 
Their opinions in regard to the prospects of future financial suc- 
cess without increase of rates of fare are in substantial agreement 
and uniformly pessimistic. Several of these articles will be quoted 
at considerable length. 

(659) 



178 The Annals of the American Academy 

W. H. Glenn, manager of railways, Georgia Railway and Elec- 
tric Company, in an article entitled 'Tares on City Lines," says: 
'This rapid process of evolution naturally causes retrospection, and 
we recall the days of stage coaches and horse cars. Twenty years 
ago electric cars were unknown and horse cars were the greatest 
medium of city travel. This method was slow and tedious; the 
driver was the change maker and the passenger was the collector. 
The longest ride at that time was not more than two miles and the 
fare was five cents, just as it is to-day. The investment in equip- 
ment was comparatively small, yet no complaint was made that the 
fare was too much. This fare of five cents has been universally 
adhered to from that day to this, notwithstanding the fact that the 
facilities offered by the transportation companies to-day are vastly 
more rapid, more comfortable, more convenient, more safe, more 
reliable, and the average maximum haul is at least five times as 
great. ... In reality, the fare of to-day is only one-half of that 
collected twenty years ago, for in that length of time the price of 
almost everything entering into the cost of street railway transporta- 
tion has increased 100 per cent. Lumber that was bought then for 
$10 per 1000 feet is now $28; steel rails that were bought then for 
$24 per ton are now $42, and a ton does not go half so far; copper, 
once at twelve cents per pound has lingered around twenty cents 
for the past few years, and has gone as high as twenty-six cents. 
In 1898 day laborers could be employed for seventy-five cents per 
day, while in 1907 they received $1.50 per day and their work was 
not nearly so satisfactory. Twenty years ago such things as dam- 
age claims were almost unknown, while to-day they appear in 
hordes, consuming from 5 to 15 per cent, of the gross revenue of 
the companies. In like manner all other costs have increased ; 
yet all this time the fare of five cents has remained the same, while 
five times as good service has been given at an increased cost to- 
day of 100 per cent, over what the same service could have been 
furnished for twenty years ago. . . . The men, women and 
children who ride on the cars receive more for their labors or for 
their wares than they did ten years ago. Every one of them pays 
more not only for the luxuries of life, but for its necessities, than 
ten years ago. When a laborer walks into a butcher shop the buy- 
ing power of the five-cent piece in his hand decreases 50 per cent, 
under that of ten years ago; yet the instant he steps on a car and 

* (660) 



Electric Raihvay Stocks 179 

tenders it to the conductor in payment for his transportation it 
immediately increases 500 per cent, in buying power." 

C. L. S. Tingley, second vice-president of the American Rail- 
ways Company, says in part : "The nickel has been purchasing more 
and more year by year in the way of street car transportation; its 
power to purchase in other directions has been declining year by 
year ; wages have been steadily advancing, and if the demands made 
by organized labor and the platforms which they are promulgating 
are any criterion, the end is not yet. Materials have kept pace with 
or outrun labor. In a table published in a recent number of the 
Raihvay World, giving the costs of materials used on steam roads, 
all of which would enter largely into the operation of electric 
roads, for a ten-year period from 1897 to 1907 the increase ranges 
from 24.70 per cent, on brick to 136.34 per cent, on pig iron. It 
is apparent that something must be done if the electric road is to 
stay in business and make a return on the capital invested. The 
most obvious means of meeting this difficulty would seem to be the 
adoption of the system so prevalent in Europe, commonly known 
as the zone system, whereby the rate of fare paid by each indi- 
vidual is proportionate to his ride. This is undoubtedly a logical 
and scientific method ; it is, however, open to a number of objections. 
The American public has been educated to the other system, and 
the outcry against any change would undoubtedly be great, par- 
ticularly as it would, undoubtedly, be supported by philanthropic in- 
dividuals and associations on the ground that the zone system tends to 
create congested districts, forcing workingmen into the tenements, 
producing unsanitary conditions, and handicapping his children in 
their physical and moral growth." Mr. Tingley might truthfully 
have added, that, as far as the near future is concerned, the zone 
system is rendered impracticable in almost every city in the United 
States because of existing franchises, usually still with many years 
to run and often expiring part at a time. 

Edwin S. Webster, of Stone & Webster, of Boston, a firm that 
has been unusually successful in building and operating important 
and widely scattered electric railway properties, in an article en- 
titled ''Comments on the Electric Railway Situation," says: "The 
problem of securing an adequate revenue from passenger fares ap- 
pears to be the most serious issue now confronting the electric 
railway industry. In the early days of electric transportation the 

(660 



180 The Annals of the American Academy 

five-cent fare unit was, on the whole, appropriate to the standards 
and cost of service rendered. The rolling stock was composed of 
small, light cars, usually of the single-truck type; the speed of 
operation was relatively low; the power demands per car were 
moderate; the cost of labor and materials was far below present 
figures ; comparatively light roadbed, track and line construction met 
the requirements of the traffic, and the investment per mile of 
track varied from one-half to one-sixth that of the present, depending 
upon the size of the community served and other local conditions. 
Even in the larger cities the transfer facilities were greatly limited, 
and the average haul per passenger was much shorter than to-day. 
"The standards and costs of service now rest upon an entirely 
different plane. The expansion of city systems into suburban ter- 
ritory has raised the average length of haul independently of other 
causes. The transfer situation has become serious, through its 
extension beyond reasonable limits. The purchasing power of the 
nickel from the standpoint of the passenger has greatly increased. 
From the point of view of the operating company, however, the 
nickel pays for the conduct of considerably less transportation 
than a few years ago. The cost of power has been reduced to 
some extent by improved technical administration (and increased 
technical efficiency) of generating and distributing equipment, but 
not enough to offset the enlarged demands of heavier cars operated 
at increased speed. The growth in the size and weight of cars 
has increased the rolling stock investment account and necessitated 
the expenditure of large sums of money for physical plant, includ- 
ing heavier track and more permanent roadbed construction, multi- 
plied capacities in power stations and lines and enlarged facilities 
for the economical maintenance of equipment. The advances of 
the past few years in the cost of labor and material have placed 
a premium upon new construction work and have narrowed the 
margin between receipts and expenses. Under the early conditions, 
average fares of from one to one and one-quarter cents per mile 
enabled the companies to make progress ; to-day these returns are 
insufficient to provide a reasonable dividend in many properties and 
maintain the most modern standards of service. The increased 
length of ride now possible upon a single fare of five cents makes 
it difficult for the larger city properties to earn a reasonable divi- 
dend, and only in a less degree does this condition bear upon the 

(662) 



Electric Railway Stocks 181 

companies of smaller size. The relatively great density of traffic 
in the larger city is not sufficient to offset the burdens of transfer, 
the extension of lines into outlying districts and the rising cost of 
operation. 

"In the larger cities there must be some change in the transfer 
situation in order to secure a fair return to the companies. Scien- 
tific administration of properties is insufficient to meet the rising 
costs of service rendered to the traveling public. The average haul 
per fare must be reduced through the restriction of transfer privi- 
leges or the imposition of some sort of a charge for transfers 
issued. The policy of selling fares at reduced rates must be 
closely scrutinized, and in many instances abolished. The fare unit 
in itself will have to be raised to six cents or over in cases where 
it is clear that a line cannot be operated with reasonable profit on 
a five-cent fare basis, or else the fare zones will have to be 
shortened. Otherwise a line honestly capitalized will have to reduce 
its capital to a point below the actual investment in the property. 
Denial of a reasonable return upon a proper investment and insist- 
ence upon the highest standards of service closely approach con- 
fiscation." 

These authoritative opinions, together with others in the Janu- 
ary i, 1910, issue of the Electric Railway Journal by a number of 
authorities, including R. P. Stevens, president of the Lehigh Valley 
Transit Company; Charles S. Sergeant, vice-president of the Bos- 
ton Elevated Railway ; Thomas McCarter, president of the Public 
Service Corporation of New Jersey, and J. M. McMillan, general 
manager of the Pacific Electric Railway, agree in their lack of 
belief in future financial success without increase in fare. While 
the cities were originally glad to give long-term franchises free in 
order to secure the advantage of the primitive service of the early 
days, yet now that the enormous investments have been made and 
are worth comparatively little without the renewal of the franchises 
from time to time, the cities have the whip hand and there is 
a constant and pressing demand for extensions and improvements of 
lines, for reduction of capitalization and earning to "physical valua- 
tion" figures, for elevated roads and subways, for increased direct 
taxation or indirect taxation by means of payments for franchises, 
profit sharing, free passes for city employees, paving and paving 
maintenance, bridge construction, snow removal, street cleaning or 

(663) 



1 82 The Annals of the American Academy 

other highway expenses as conditions precedent to the renewal and 
extension of franchises. 

As for hope from the fundamental relief of raising fares, there 
is practically none. The tendency is rather the other way. In the 
noteworthy case of Cleveland it has taken such extreme form that 
the border line between regulation and confiscation has been reached, 
if not passed. At any rate, it cannot be disputed that those who 
invested in Cleveland Electric Railway Company stock prior to the 
famous three-cent fare agitation lost heavily, and that the test of 
"physical valuation," as applied to the Cleveland lines in settlement, 
would in many other cities have had the more drastic effect of 
wiping out the stock altogether, and even, in some cases, part of 
the underlying stocks and bonds as well. One who can hope for 
such a general, radical change in public sentiment as to reverse com- 
pletely the tendencies we have mentioned and so to make invest- 
ments in city street railways increasingly attractive instead of in- 
creasingly unattractive would, indeed, be an optimist. The increas- 
ing cost of labor and materials, being in large part directly or in- 
directly the result of the increasing overproduction of gold, which, 
as far as can now be seen, will continue indefinitely or even in- 
crease, is thus practically a permanent and increasing "bear" factor 
with present rates of fare. The signs of relief from public service 
commissions are indeed faint. They seem to indicate merely the 
inevitable truth that the cities, in self-defense, cannot afford to have 
their transportation systems entirely wrecked. An assessment, 
scaling down or elimination of the common stock, or even, in many 
cases, of some of the underlying or "guaranteed stocks," would 
often not only not be contra-indicated, but would, on the other hand, 
often be the best solution. The fact that often these represent no 
real "physical valuation" would be small comfort to those who thus 
may see their investments wiped out entirely or scaled down. 

An additional bear factor is the fact that, though proper main- 
tenance is as essential to the getting of revenue and to the render- 
ing of a suitable service as it is to the preservation of the assets 
against which securities are issued, the revenue of American street 
railways has not been charged with sums even approximating the 
actual costs of maintenance. This has resulted in an erroneous 
idea of past profits. This often was exactly what was intended 
as an aid to the "insiders" in unloading to advantage. The increased 

(66 4 ) 



Electric Raikvay Stocks 183 

capitalization which has of necessity resulted has in the past often 
been supplied by the issue of additional stock on bonds, often during 
the reorganizations and consolidations previously mentioned. At 
present the results are showing in the "rehabilitation" idea now 
becoming the keynote in most of our largest cities. Chicago has 
been spending $50,000,000 in making over her lines, but Cleveland, 
Baltimore, Brooklyn and New York and other cities are already 
feeling the need for enormous rehabilitation expenditures. This 
lack of proper maintenance in the past has been an aid in making 
a proper showing on paper and in meeting fixed charges and 
dividends. It will now become an increased fixed charge itself — 
an additional burden to be reckoned with in the future. 

Only in the most exceptional and unusual cases can there be 
'hope for appreciation in stock values of city properties, especially 
those of the larger cities. On the average, they should be tending 
and are tending toward a lower level, and receiverships should be- 
come more frequent. 

Suburban or Old-style Inter urban Electric Roads 

The suburban and other lines of the type common in the East, 
but found elsewhere; the sort that run beside, or more usually upon, 
the country highways and through the streets of suburbs or small 
towns, are distinct from the city line and from the real inter- 
urban. They are in part survivals showing the evolution of the 
interurban, for the prototype of the interurban, like that of the 
original railroad was simply a modification of the highway. 
Such lines save the cost of private right of way and have the ad- 
vantage of running by the doors of established homes, both in 
the towns and along the highways. While they often charge five 
cents for a ride of varying lengths, yet this is simply a convenient 
way of collecting the fares, due to the fact that most of the rides 
are not of great length. Franchises and rates of fare usually do not 
menace the future as seriously as in the case of the city lines, 
though they are often operated under township and county fran- 
chises which, at times, can be renewed only upon onerous condi- 
tions. The fare is often not even up to the limit allowed by 
state law. 

Much of the traffic seems practically permanent and destined 
to increase naturally with the growth of the country. Such of these 

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184 The Annals of the American Academy 

lines, however, as draw from the same territory and, in fact, often 
for considerable distances practically parallel existing steam roads 
are exposed to the probable future competition from electric traction 
on these roads, which with equally frequent headway and stops, 
combined with the high standard of the present steam road construc- 
tion and terminal advantages, would readily rob them of much of 
their present traffic — in many cases of such a large proportion as 
to make the bearing of their bond interest difficult or impossible. 
A modern interurban in most cases would be unlikely to be con- 
structed in the same territory, but in case of the construction of such 
a road it would, in proportion to its closeness to the suburban or old- 
style interurban, appropriate the traffic. 

While the fare and franchise problems, often entirely non- 
existent, are seldom as serious as, in the case of the city lines, and 
while in many cases the country would not justify a real interurban, 
and no steam road is close by to change traffic conditions by electrifi- 
cation, yet the limitations even under the more fortunate conditions 
are marked. High speed cannot be obtained upon a highway, even 
in case considerations of public safety and franchise or ordinance 
obstacles should not intervene. The general alignment of such lines 
is seldom good, and the highways upon or along side of which they 
are usually built are laid out with sharp turns and heavy grades — 
without engineering skill or common sense. In fact, as a rule, every 
principle of railway location and economics is violated with a con- 
sistency that is maddening to the civil engineer. The electric car 
can, it is true, show a remarkable superiority to a steam train in 
climbing the heavy and broken grades and in taking the sharp 
curves, but this is an abuse, not a proper use, of the superiorities 
of electric traction. The results show not only in the decreased 
speed and maximum load possible, as compared with similar equip- 
ment on a proper location, but also in the increased coal bill. Hopes 
for much future freight and long-distance passenger traffic should 
not cheer the stockholder. With, as a rule, but little to offset the 
increasing tendency of wages and cost of equipment, there can only 
in isolated and special cases be much increase in dividend yield and 
safety. On the average, the prospect is not favorable and in many 
cases it is distinctly unfavorable. 



(666) 



Electric Railway Stocks 185 

Modem or True Interurban 

We now come to the modern or true interurban. In a typical 
case, it represents a high-speed passenger electric line, carrying, how- 
ever, in addition to its passenger traffic, express and freight, and run- 
ning on private right of way through the country or even through the 
smaller towns. These lines center largely around Los Angeles, 
Indianapolis, Cleveland, Dayton, Detroit, Toledo, Columbus, Mil- 
waukee, Seattle, Portland and Spokane. They, however, are in no 
sense suburban. They usually connect towns and cities separated by 
considerable distances from one another, and a large proportion of 
their traffic is for distances of over ten miles, a considerable pro- 
portion for over twenty-five miles. The greatest mileage develop- 
ment is in Ohio, but the Indiana star formation, with links connecting 
almost everywhere, is the most completely centralized, radiating in 
every direction from Indianapolis. The traffic is heaviest, however, 
around Los Angeles; and, on the whole, the great Illinois Traction 
System, with five hundred miles of well-balanced and connected lines, 
not centering in any one large city, is the most typical of the extreme 
interurban development. 

There was no considerable suburban population in the Middle 
West or Pacific Coast sections at the period when the first Eastern 
city lines extended cautiously along the highways near the larger 
cities, following the established population and keeping close to the 
original "street car" idea. The town or city lines, built, of course, 
for slow speed and local traffic, were naturally joined, or the short 
intervening links filled in by separate companies, but with the same 
ideas of economics and construction. There was no idea of rivaling 
or of seriously competing with the steam roads. They hoped for 
only the leavings, and, as far as they affected the steam roads, to 
be merely feeders. 

Often, especially in New England, this tendency was increased 
by the fact that in large part they have come under the control 
of the steam roads, especially under that of the New York, New 
Haven & Hartford. In Pennsylvania, the only Eastern state having 
a large area coupled with a widely scattered population such as would 
naturally lead to true interurban development on a large scale, such 
development was prevented by the dominating influence of the steam 
roads in the legislature, preventing until recently such development 

(667) 



186 The Annals of the American Academy 

by not allowing electric roads the right cf eminent domain, without 
which true interurban construction is impossible, or the right to 
haul freight and express, thus removing a present considerable source 
of income and a future one of especial promise. They in large part 
suited the conditions of dense population along established highways, 
and the short distances involved in the first extensions. They 
avoided the initial expense of private right of way, which in such 
well-populated sections would have been heavy. 

The real interurban was an equally natural development of the 
more scattered towns and small cities of the Middle West, and 
especially of Ohio, Indiana and Illinois. Private right of way was 
naturally not as valuable as in the more thickly settled East, and 
properly skilled right-of-way agents could induce the more pro- 
gressive Western landholder to make proportionately greater sacri- 
fices than would have been possible farther east. Higher speed 
was more necessary by reason of the greater distances and more 
scattered population ; the private right of way made considerations 
of alignment, gradients and curvature possible, and these, in turn, 
made possible the required speed. The electric road began to come 
into its own — no longer a street car line, any more than a railroad is 
an ordinary road with rails laid upon it. The more progressive 
West assimilated gradually the idea that curvature and gradient 
affected draw-bar pull in the same way whether the motive power 
be mule, electric or steam ; and, as the science of railroad engineering 
had long since been perfected by the Rocky Mountain experience 
of the great transcontinental locating engineers, it became largely a 
matter of applying the science of steam railroad engineering to the 
problems of electric construction, the economics of which were 
worked out by common sense, business acumen and actual experi- 
ence, as modifications of the economic theory of railway location 
as exemplified in Wellington, the classic authority of the railroad 
locating engineers. 

The electric road had come to its own at last. Instead of 
being a dependent feeder of the steam road, the interurban had a 
definite field of its own. The more frequent headway and stops 
closer together, made possible by the direct advantage of electric 
over steam traction and through the indirect effect of the smaller 
units of operation made possible thereby, together with the more 
cleanly, pleasant and comfortable service, often more convenient to 

(668) 



Electric Railway Stocks 187 

residence and business, placed them beyond fear of serious com- 
petition from steam traction on shorter hauls. At first it was 
assumed that the limit of through service that could really get 
traffic from steam competition was about twenty-five miles ; but now 
it is found that in the case of the limited cars in the Middle West, 
by the construction improvements above mentioned, by improve- 
ment in operation and by cutting out unimportant stops, the time 
of accommodation trains on steam roads can be approximated or 
exceeded, and thus, with the other advantages named, they are able 
to •compete in an increasing number of cases for much greater dis- 
tances. For example, the Fort Wayne & Wabash Valley Traction 
Company in the face of direct steam competition does the bulk of 
the passenger business between Fort Wayne and Indianapolis, a dis- 
tance of one hundred and thirty-seven miles. 

These numerous advantages, together with the increase in the 
number of country and suburban homes resulting, and a change in 
farming methods close to the lines, causing an increased tributary 
population, especially by the growth of trucking and dairy farming, 
made possible by their freight service and itself giving a constantly 
increasing passenger and freight traffic, naturally caused the promot- 
ing, financing and building of interurban roads to proceed with great 
rapidity. Hopes of a great and constantly increasing return caused 
an unusual speculative enthusiasm. 

Satisfactory statistics of interurbans are unusually difficult to 
obtain, but the first annual report of the Ohio Railroad Commis- 
sion covering electric roads and giving elaborate details of the busi- 
ness of some sixty electric roads coming under its jurisdiction for the 
year ending June 30, 1908, the second report is not yet available, 
is unusually satisfactory. The larger city companies are not in- 
cluded, although in several cases the interurban roads operate city 
properties and the earnings of these properties are included in the 
total earnings and are considered under the total capitalization. 
The same is true of several properties operating lighting and power 
systems. Nevertheless, these figures are interesting as showing the 
average conditions, and are unusually free from the mingling of 
subway, elevated, city, surface, suburban, interurban, power, light 
and even gas statistics that make the usual report a veritable 
hodge-podge that is neither fish, flesh nor fowl. 

The sixty companies represent 2,794 miles of track. The stock 

(669) ' 



188 The Annals of the American Academy 

is $136,461,000 and the outstanding bonds $89,308,000, a total capital- 
ization of about $80,000 per mile, including, of course, both stock 
and bonds. The total so-called "cost of construction" to date is 
given as $185,976,000, or on a basis of $66,485 per mile. Some of 
the older roads which have gone through periods of reconstruction 
and consolidation — in some cases receiverships — represent as high as 
$100,000 per mile. On the other hand, some of the later and more 
modern roads report investments of only $28,000 to $30,000 per 
mile. The Scioto Valley, a high type of third-rail line, equipped 
for heavy freight, reports an investment of $67,000 per mile. 
Twenty-two of the sixty companies failed to earn their fixed 
charges, their total deficit being $566,243. Twenty companies paid 
dividends aggregating $808,000 — considerably less than 1 per cent, 
on the total outstanding stock of the sixty roads, and of these 
dividends only $436,000 was paid by the operating companies, the 
balance being guaranteed dividends paid to stockholders of leased 
lines. Two of the operating roads paying dividends have no bonded 
indebtedness and were built and are operated by the owners. Only 
two roads reported operating expenses of less than 50 per cent., 
while three claimed it cost them more than 100 per cent, to operate. 
The average of the sixty companies was 61.47 per cent. 

Most of the roads are developing the freight business, but the 
greatest percentage of freight business to the total was that of the 
Toledo & Western Railway, which reported 33.51 per cent, of the 
gross as coming from freight, while the Eastern Ohio and the Inter- 
urban Railway and Terminal Company each reported 19 per cent. 
The average for forty-nine roads doing a freight business was but 
5.81 per cent, of the total gross business, while light, power and 
"other items," the latter including, of course, express, United States 
mail and car advertising, aggregated 5.93 per cent, of the gross. 

The average fare per passenger is 11.5 cents; the highest that 
of the Scioto Valley, 28.1 cents, while that of the Lake Shore 
Electric, in spite of its long-haul Cleveland-Toledo business, is but 
seventeen cents per passenger. These figures show that, in spite 
of the increasing long-haul development, the short-haul business 
predominates. The average of the steam roads of Ohio was sixty- 
four cents per passenger. 

The conclusion is obvious that, as shown by these typical 
figures, interurban railroad stock has not usually been a good in- 

(670) 



Electric Raihvay Stocks 189 

vestment; in fact, has not, as a rule, yet attained the status of a 
true investment at all. The figures, in fact, on their face make a 
much worse showing than those of the city or suburban lines which, 
as we have seen, are themselves not, as a rule, desirable investments. 

In reality, however, these figures show nothing that does not 
justify the favorable treatment given previously of the true inter- 
urban, nor do they give us any reason to believe that the specu- 
lative enthusiasm in promoting, financing and building the inter- 
urbans was not justified. Some understanding of the true inward- 
ness of the financing and construction is, however, necessary. 

The ways and means were almost infinite, but in general the 
stock represented no real investment. Among those engaged in the 
work of financing and constructing such roads it is frankly re- 
garded as "velvet." It is certainly safe to say that there is not an 
interurban road in Ohio that actually represents an investment of 
$66,485, the average "cost of construction" per mile as reported 
by the sixty companies. Indeed, in amount really invested the half 
of this average "cost of construction" has not been, as a rule, ex- 
ceeded in Ohio. 

The most noteworthy groups of financiers and constructors of 
the best types of the modern interurban are in Cleveland. One of 
the many methods is to form a syndicate, the members of which 
pay in previously subscribed installments as the construction pro- 
gresses, and the construction work and installments paid furnish col- 
lateral for borrowing. In the meantime the investors have cer- 
tificates of participation to show for the amount invested, or even 
only receipts for the amount paid in. When the road is sold entire, 
by vote of the controlling interest of the syndicate, or by the syndi- 
cate managers themselves, by virtue of the authority vested in them 
by the syndicate agreement, there is often a very considerable per- 
centage of profit made upon the entire amount spent in construction, 
a large part of which, say one-half in this case, is borrowed, leaving 
a still greater profit upon the speculative investment of the partici- 
pants. In case the road cannot be disposed of as a unit, the syndicate 
may issue bonds for an amount equal to or greater than the cost of 
the road. In such cases the syndicate managers often operate the 
road for a while, trying to work the earnings up so that it can 
"bear the bond interest," as they say. Actual cost is not con- 
sidered as the real criterion of the proper amount of bonds to be 

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190 The Annals of the American Academy 

issued. The proper value is regarded as the earning power capital- 
ized — what the road is worth as a going concern. If this is not 
more than the actual cost, the road is a disappointment. The stock 
is an afterthought, pure "velvet" — the capitalization of the hopes 
and expectations of the future. The fact that in a typical cost 
of financing such hopes and expectations have not yet been realized 
is no argument that they will not be. Part of the stock may be 
given with the bonds to the syndicate participators in case of dis- 
tribution due to the dissolution of the syndicate, or with the bonds 
as a bonus in case of sale, the participants retaining other stock as 
part of all their profit, in the latter case being repaid for their in- 
vestment entirely from the proceeds of bond sales. In connec- 
tion with the general syndicate mentioned above, there may be also 
an underwriting syndicate, composed altogether or in part of the 
real powers behind the financing. A construction company almost 
always, and perhaps an engineering company, in addition, each 
also composed in part or altogether of the same powers, may play 
their part, and the trust company or companies that carry the loans, 
and perhaps also join in the underwriting syndicate mentioned, 
must be reckoned with. Some of those really "behind the proposi- 
tion" are probably directors or officers of the trust company. Con- 
trol of, or a "pull" with, one or more trust companies is a point 
of fundamental importance. In short, there are wheels within 
wheels and wheels within the latter. The members of the general 
syndicate may be very far from being on the real inside. There 
are often many cellars below the ground floor, and but few know 
their contents. 

This statement of one of the many examples is not meant as a 
criticism of methods or men. The participants in the general 
syndicate in the case given may not be on the real inside, but, if 
they go in on the propositions of certain experienced groups, they 
almost invariably make money with very little effort on their own 
part, and not only once but often, turning their money over every 
two or three years, investing in one road after another under con- 
ditions varying in the details of financing, but in general similar. 
They have every reason to intrust their speculative investments to 
the men whose financial power and business ability have repeatedly 
made money for them. These real insiders, too, who promote 
finance and build such roads cannot be expected to do it for an 

(672) 



Electric Railway Stocks 191 

ordinary investment return, or even for such proportionate gains as 
the ordinary participant in the general syndicate secures. Such 
men are financial powers and are leaders in the interurban develop- 
ment, throwing aside precedent and developing an admirable public 
utility which has already become a most important factor of better- 
ment in the sections they operate in ; and with resources and ability 
that would win excellent returns in a less risky and harrowing 
business, they cannot be expected to develop such betterments for 
health's sake. 

Our conclusion cannot well be other than that the stocks of 
many of the larger and better systems which have gone through 
most of their construction development offer excellent speculative 
investments. With, as a rule, steadily increasing population, wealth 
and industry tributary, practically no franchise difficulties, right of 
way and terminals rapidly increasing in value, a growing proportion 
of freight and express traffic, and no serious fare difficulties — as a 
rule their fare is below the maximum limit allowed — the tendencies 
are in the main toward betterment. Public opinion is distinctly 
favorable. In case of close competition with steam roads the latter 
are increasingly inclined to abandon more and more of the shorter 
haul passenger traffic to them, while the electric roads are success- 
fully competing for constantly increasing distances. By the con- 
necting of existing roads by new construction, their own interchange 
of passengers, freight and express is increasing. Further develop- 
ment in the line of sleeping- and dining-car accommodations may 
ultimately be an important additional factor in increasing their long- 
haul passenger traffic. 

Interchange of freight with steam roads is already established 
in several important cases. Large, we.ll-balanced and well-connected 
systems, like the Illinois Traction, of Illinois, and the Union Trac- 
tion, of Indiana, have far less to fear from the steam roads of the 
same section than the latter have from them. The stocks are, of 
course, in their infancy as investments, and are usually not dealt in 
actively, but for the investor who is discriminating and who desires 
something in which the future holds strong speculative possibilities, 
many of them should be attractive. The groups of financiers who 
built the better lines successfully discounted the immediate future 
and have realized their profits, but they built for a greater future, 
which has not yet been realized. 

(673) 



INDUSTRIAL STOCKS AS INVESTMENTS 



By Edgar J. Meyer, 
Of Eugene Meyer, Jr., & Co., New York City. 



Industrial stocks are constantly becoming of greater importance 
in the investment field. The term "industrial stocks" is here taken 
to mean the securities of those corporations engaged primarily in 
the manufacturing business, as distinguished from public utility, 
irrigation or mining companies, which are frequently classed under 
the general term "industrials." The strongest reason for expecting 
the popularity of these stocks to increase steadily lies in the charac- 
ter of the country's development. We are living to-day in the manu- 
facturing or industrial era, whereas the previous period, which began 
before 1880 and lasted until after 1890, was primarily the railroad 
age. The railroads will always share largely in the normal growth of 
the country, and while this is still rapid, the day of really great oppor- 
tunities in the railroad world in this country has gone by. We 
shall never again witness the transformation in a decade or less of 
a road, described as a streak of rust, earning nothing and serving 
a practically uninhabited country, into a modern system, with rock- 
ballasted roadbed, protected by block signals and equipped with the 
very best and latest facilities, and paying handsome dividends. 

The earning power of industrial companies is comparatively 
much more flexible than that of railroads. The tendency to fix by 
legislation the maximum rates which may be charged for trans- 
portation has gone so far as to restrain the smooth working of 
basic economic laws. At this time of constantly increasing prices 
of raw materials and labor the limit of profit has become more or 
less fixed in the case of railroads, whereas the manufacturing com- 
panies are practically free to increase the prices of their products 
commensurate with the advance in their operating costs. From the 
investor's standpoint these conditions have produced a clear distinc- 
tion between the railroads and industrials. For with the former it 
is becoming now largely a question of maintaining their earning 
power by making new capital expenditures, while with the latter new 
capital is almost always productive of an increase in earning power. 

(674) 



Industrial Stocks as Investments 193 

The necessity of changing the motive power of railroads from steam 
to electricity, of driving tunnels under rivers, of vast enlargements 
of terminal facilities, such as we have seen in the case of the New 
York Central and the Pennsylvania Railroads, requires an outlay of 
capital on which the return is certain to be small, at least in com- 
parison with the results of former years. 

One of the most vital influences on both railroads and industrials 
lies in the development of legislation affecting them. While up to 
the present we have not progressed far enough to determine the 
final outcome, it would seem that industrial corporations have less to 
fear from this source than the railroads, for the reason that trans- 
portation companies are quasi-public institutions, while manufactur- 
ing companies are entirely private in their character. A public 
service or an interstate commerce commission may arbitrarily order 
an increase in the number of trains run, or reduce the rates which 
may be charged, but no law except that of demand and supply regu- 
lates the output of the factory or the price of its products. Carried 
to an extreme, present railroad legislation would result in govern- 
ment ownership of the railroads. Indeed, we have only to glance 
at Europe to see the very achievement of this. It seems less likely, 
however, that, in the words of a socialistic journal, we are about 
to "let the nation own the trusts," or any other form of private manu- 
facturing enterprise. In most foreign countries to-day the shares 
of the industrial companies offer exclusively the most attractive op- 
portunities for general investment. 

Allusion has been made above to the present as the manufac- 
turing age in this country. Without doubt one of the greatest causes 
in making it so has been the combination of capital. The stability 
of industrial stocks as investments rests on their power to earn fair 
profits under all circumstances. In other words, they must be inde- 
pendent, in so far as possible, of local influences, cither in a special 
line of trade or in one particular country. Through the combination 
of smaller units into the great industrial corporations of to-day, 
these problems have been solved in a highly satisfactory manner; in 
the first instance by diversifying their products, as, for example, the 
United States Steel Corporation, which manufactures everything 
from steel rails to wire nails ; the International Harvester Company, 
which produces twine as well as the most complicated harvesting 
machinery; the American Locomotive Company, which builds auto- 

( r >75) 



194 The Annals of the American Academy 

mobiles and locomotives, and so forth. By establishing selling 
agencies and building up a clientele in foreign countries, and in some 
instances by actually installing manufacturing plants abroad, the 
industrial companies have largely insured themselves and their share- 
holders against dangers from purely local causes arising in any 
single country. 

The large industrial companies are responsible for the great 
progress in the scientific methods of manufacture. In practically 
every case they maintain a large experimental department with a 
staff of highly trained experts. By this means chiefly has it been 
possible to discover the most economic methods of manufacturing 
and to achieve remarkable results in the utilization of by-products, 
which heretofore had been counted as total waste. The enormous 
expense of this experimentation, which necessarily often yields noth- 
ing, naturally prohibits the small manufacturer from engaging in it, 
although he frequently profits by the results. 

«■ The control of the supply of raw materials has injected still 
another great element of strength into the industrial companies. A 
very large number of manufacturing companies control their own 
coal, iron, copper or tin mines, limestone quarries or forests of tim- 
ber, or whatever they may require in the manufacture of their fin- 
ished product. The value of this lies not only in the protection 
against extreme price fluctuations, but also in the certainty of ob- 
taining a constant and sufficient supply at all times and under all 
circumstances. In many cases this policy extends not only to the 
control or ownership of raw materials, but also to adjunct manu- 
factures and transportation facilities, either on land or by water. 

Recent developments in the United States have been such as to 
make industrial shares more desirable to the investor than ever. In 
the panic of 1907, and in the business depression which followed it, 
the financial soundness and earning power of all business enterprises 
were put to a very severe test, and the record of only one important 
receivership among industrial companies, which was due primarily 
to injudicious financing rather than to the falling off of the com- 
pany's own earning power, is most significant, especially when con- 
trasted with the record of the railroads showing twenty-four receiv- 
erships involving over 8,000 miles of road. Furthermore, many large 
industrial companies have in the very recent years made additions 
and extensions, in many cases out of earnings, to the capacities 

(676) 



Industrial Stocks as Investments 195 

of their plants, with the general result that they are in a position to 
handle more business at a greater profit than formerly. 

Most of the stocks of the larger industrial companies are listed 
on the New York Stock Exchange. Not only does this give them 
the important advantage of a free and broad market, which makes 
them acceptable collateral in loans, but it also enforces the fullest 
publicity as to earnings and operations, which is seldom found to 
exist among companies not listed on the exchange. It is gratifying 
to note that the tendency of the stock exchange is to require more 
and more complete reports. The relatively higher standing in the 
eyes of investors which is enjoyed by the companies giving the most 
complete information, is gradually causing all the large companies 
voluntarily to take the public into their confidence to the fullest ex- 
tent possible. This is even more important in the case of foreigners, 
who have fewer facilities than domestic investors for obtaining re- 
liable information on companies in which they are interested, unless 
such information is given in an official statement of the company. 

The question of the relation of the tariff to industrial com- 
panies has too many ramifications to be discussed here at length. 
Suffice it to say that one of the most important reasons for the 
establishment of the tariff was to protect and promote the growth 
of our infant industries. Most of these have by now become firmly 
entrenched. Due to their natural growth and the growth of the 
country, their perfect organizations and scientific methods, they 
are now in a position to conduct operations at a substantial profit, 
and even if part of the protection were removed they could still 
compete successfully with foreign products. Past experience has 
shown us, however, that such changes come about gradually, allow- 
ing plenty of time for the adjustment to take place. 

In general it may be said that the preferred shares of industrial 
corporations represent the immediate earning power at the time of 
organization, and that the common stocks represent the hopes and 
possibilities of the future — which in most cases of industrial com- 
panies have been more than realized. Recently, though, there has 
been a healthy tendency to issue common stocks, based conserva- 
tively on an actual earning power, the International Harvester Com- 
pany being a notable case in point. Naturally, from the standpoint 
of pure investment, without regard to speculative possibilities, the 
preferred stocks are more desirable than the common, but there are 

(677) 



196 The Annals of the American Academy 

special cases where the preferred has also a speculative value, as, 
for example, those which share in dividends with the common after a 
certain amount has been paid on the latter, or in other cases where 
a newly issued security has not yet had an appreciation in value 
which steady absorption by investors generally produces. 

The following table gives a list of twenty companies, whose 
shares are quoted on the New York Stock Exchange. These com- 
panies, which are representative of the general class of industrial 
corporations, both in respect to -their financial standing and the 
character of their products, show a record of having paid the divi- 
dends on their preferred stocks without interruption, with the ex- 
ception of one company, whose dividend in arrears amounts to a 
little more than one semi-annual payment. The average rate paid 
by these companies is 6.65 per cent. This average dividend was 
earned on an average two and five-eighths times over. The average 
price of the preferred shares of these companies was 107 on March 
1st, making the average yield 6.19 per cent. These figures seem to 
give pointed evidence as to the safety and attractiveness of industrial 
stocks as investments : 

Incorpo- First 

porated Dividend 

in Paid in 

American Agricultural Chemical, 6 per cent, cumulative.. 1899 1899 

American Beet Sugar, 6 per cent, non-cumulative 1899 1899 

American Car and Foundry, 7 per cent, non-cumulative.. 1899 1899 

American Cotton Oil, 6 per cent, non-cumulative 1889 1892 

American Locomotive, 7 per cent, cumulative 1901 1901 

American Smelting and Refining, 7 per cent, cumulative 1899 1899 

American Sugar Refining, 7 per cent, cumulative 1891 1891 

American Tobacco, 6 per cent, cumulative 1904 1905 

American Woolen, 7 per cent, cumulative 1899 1899 

Du Pont de Nemours, 5 per cent, cumulative 1903 1903 

General Chemical, 6 per cent, cumulative 1899 1899 

International Harvester, 7 per cent, cumulative 1902 1907* 

International Steam Pump, 6 per cent, cumulative 1899 1899 

National Biscuit, 7 per cent, cumulative 1898 1898 

National Lead, 7 per cent, cumulative 1891 1892 

Pressed Steel Car, 7 per cent, non-cumulative 1899 1899 

Railway Steel Spring, 7 per cent, cumulative 1902 1902 

Republic Iron and Steel, 7 per cent, cumulative 1899 1899 

United States Steel, 7 per cent, cumulative 1901 1901 

Virginia-Carolina Chemical, 8 per cent, cumulative 1895 1895 

Preferred stock issued in 1907. 

(678) 



STOCKS OF FINANCIAL INSTITUTIONS 



By L. A. Norton, 

New York City. 



In considering this field for investment, we may say at the out- 
set that its importance is very apt to be underrated, because of the 
fact that the stocks of financial institutions are not as a rule the 
subject of active speculation upon the great stock exchanges, and 
accordingly the attention of investors is not attracted to them daily, 
as in the case of railroad stocks, by market reports and an abundance 
of newspaper comment. 

While it is difficult to estimate with any exactness the total 
volume of these securities, we have in the case of national banks an 
exact compilation made by the Comptroller of the Currency, as of 
January 31, 19 10, which shows that on that date there were in the 
United States 7045 national banks, and that the aggregate of their 
capital, surplus and undivided profits was as follows : 

Capital stock $960,124,895 

Surplus 619,838,370 

Undivided profits 199,342,082 

Total $1,779,305,347 

It is usually estimated that the capital invested in state banks 
and trust companies throughout the country is nearly equal to that 
invested in the national banks, and if we add to this the amount in- 
vested in fire insurance companies, surety and casualty companies, 
title insurance and mortgage companies, we may perhaps conserva- 
tively estimate the total volume of the stocks of financial institutions 
in the United States as represented by book value to be somewhere 
between $3,500,000,000 and $4,000,000,000. But as it is almost im- 
possible to grasp the significance of such immense figures, except by 
comparison, we may say roughly that the amount invested in these 
securities is probably somewhere between twenty per cent, and 
twenty-five per cent, of the total investment in the stocks and bonds 
of the steam railroads of the United States. 

The volume of these securities is then important enough so 

(679) 



198 The Annals of the American Academy 

that an analysis of their characteristics may well claim our attention. 
In a prospective investment the investor always looks for four great 
cardinal features : First, security ; second, income return ; third, ap- 
preciation in value ; fourth, marketability. 

The relative stress of his requirements as to each of these fea- 
tures will depend first upon his temperament and second upon his 
circumstances. His success in finding securities which really meet 
the requirements he has set for himself will depend partly upon the 
information available, partly upon his ability to analyze and weigh 
the information which he obtains, and mostly upon his general judg- 
ment. 

As the different classes of financial institutions differ widely in 
many of their general characteristics, we can perhaps best consider 
each class by itself, comparing first the stocks of this class with 
other general classes of securities and then establishing, if possible, 
some broad outlines of analysis that may be of assistance in deter- 
mining what particular stocks of the class are most likely to meet the 
requirements of the investor. 

Taking up first the national banks, let us consider their charac- 
teristics in comparison with other investments, as to the four general 
features above noted. 

First as to security ; when we consider the facts that in buying 
the stock of almost any well established and prosperous bank, it is 
necessary to pay a high premium over its par value, that the liability 
of the stockholder is not limited to the amount paid for his stock, 
but in the event of the bank's failure or impairment of capital, he is 
liable for an additional assessment equal to the par value of his stock 
or such amount thereof as may be necessary to meet the obligations 
of the bank in full ; and that the success or failure of the institution 
is absolutely dependent upon the integrity and the judgment of its 
officers and directors, the first impression is apt to be that the invest- 
ment is extra hazardous. 

For these reasons the personal element enters more largely into 
consideration in bank stock investments than it does in almost any 
other class of securities ; in fact, it is the all important element and it 
is absolutely essential that the investor who would buy bank stock 
with discrimination should know the reputation and the record of the 
men who are managing the affairs of the bank in whose stock he 
wishes to invest. It is for these reasons also that the investment 

(680) 



Stocks of Financial Institutions 199 

clientage for any given bank stock increases as a rule very slowly and 
is generally made up largely of people who either live in the immedi- 
ate vicinity or who have had opportunities of personal acquaintance 
with the management. 

But, on the other hand, there is perhaps no other line of business 
which is subjected to such constant and rigid scrutiny by the govern- 
ment as a protection for both depositors and stockholders. Five 
times a year each national bank is required to make a full report to 
the comptroller of the currency, showing its resources and liabilities 
as of a date determined by the comptroller and not known by the 
banks in advance of the call. Detailed examinations of each bank 
are also made at frequent intervals by the United States bank ex- 
aminers and their findings are reported to the comptroller, who is 
given full power to compel compliance with the law. The result 
of this system of close scrutiny has been that the percentage of 
failures among national banks is very small and as a consequence 
the stocks of these institutions have proved themselves to be, in 
general, exceptionally secure as investments. 

As to income return, the law requires that ten per cent, of net 
earnings for each half year shall be carried to surplus fund before 
the declaration of any dividend, until such surplus fund shall amount 
to twenty per centum of the capital' stock, and as it is the general 
custom among national banks to declare in dividends in ordinary 
years only a portion of the earnings and to carry the remainder 
either as surplus, or as undivided profits, the immediate yield in 
dividends is generally low, as compared with the price paid for the 
stock. But as the amount so added to surplus increases the earning 
power of the bank and makes the regularity of dividends more secure, 
and as the cumulative effect of these accretions frequently enables 
the bank to pay in time increased dividends, experience has proved 
that where too great a premium has not been paid, the ultimate yield 
in dividends has been generally satisfactory, and in many cases ex- 
ceedingly gratifying. 

As to Appreciation in Value. In the consideration of this 
feature, a distinction should be made between market value and in- 
trinsic value as represented first by net assets, second by earning 
capacity. While we may safely assume that the average mar- 
ket value of these stocks as a class, if taken over a long period, 
will fairly represent their real value as compared with other invest- 

(681) 



200 The Annals of the American Academy 

ments, the question of the market value of any given stock at any 
given time is influenced so largely by sentiment and by other ele- 
ments that cannot be measured and that bear no relation whatever 
to the intrinsic value, that any selection of these stocks with a view 
to immediate increase in market value is ordinarily a very difficult 
undertaking. 

We can, however, measure with some degree of accuracy the 
annual increase in intrinsic value of a given stock for a period of 
years, and thus establish its normal rate of growth and earnings, 
which is perhaps the best measure of its investment value, and we 
know in general that the deposits in national banks in the United 
States have doubled in the past ten years, and accordingly that the 
banking business as a whole is showing a satisfactory rate of growth^ 
and development. 

As to marketability. For the reasons noted above, the market 
for bank stocks is usually almost entirely a local market, and is 
seldom broad enough or ready enough to appeal to the speculator 
who trades in fluctuations rather than in values, but for this reason 
there is generally very little temptation to manipulate their prices, 
and quotations are accordingly a much better index of the real 
balance between supply and demand than in the case of stocks which 
have an active public market. 

There is, of course, a great difference between different stock 
of any class as to degree of marketability, and this difference is 
perhaps as wide in the case of bank stocks as in almost any other 
class of securities, so that the investor will do well to make diligent 
inquiry in advance as to the general marketability of any particular 
stock which he contemplates purchasing. Some banks are owned 
almost entirely by one or two individuals, others by one or two 
families, and still others by one or two financial institutions. In 
such cases the market for the stock is of necessity an extremely 
narrow one, but where the distribution of a stock is normal and its 
earnings and dividends satisfactory, there is seldom any difficulty 
in finding a market ready enough to meet all reasonable require- 
ments. In fact, it is often much more difficult to buy the stocks of 
prosperous banks in any quantity without bidding them up unrea- 
sonably than it is to sell without unreasonable concessions. 

Having thus outlined the general characteristics of the stocks 
of national banks as a class, let us turn our attention briefly to the 

(682) 



Stocks of Financial Institutions 



20I 



practical question of the selection from the class of such individual 
stocks as are likely to prove satisfactory as investments. 

As we have said above, the most important consideration in 
such selection is the personal character of the management, but 
having satisfied ourselves as to this, the next consideration should 
be the record of the bank as shown by its periodical statements. 
Referring again to the compilation issued by the comptroller of the 
currency, we have the whole number of national banks and the ag- 
gregate of each item of resources and liabilities. It is evident, then, 
that if we divide the aggregate of each of these items by the total 
number of banks, we can construct a typical statement which will 
represent the average bank. 

As the number of banks shown by the statement of January 
31, 1910, was 7045, it will be near enough for all practical purposes 
if we divide each item by 7000 and omit all figures less than $1000. 
This gives us the following statement for our average or type bank : 



Resources 

Loans and discounts $747,000 

U. S. bonds to secure circulation . ... 97,00c 

U. S. bonds to secure U. S. deposits 6,000 

Other bonds to secure U. S. deposits 2,000 

Bonds, securities, etc 121,000 

Due from national banks 57,ooo 

Due from state banks,- etc 22,000 

Due from reserve agents 101,000 

Bills of other national banks 6,000 

Cash 1 19,000 

All other resources 106,000 

Total resources .$1,384,000 

Liabilities 

Capital stock $137,000 

Surplus 89,000 

Undivided profits 28,000 

National bank notes 95,ooo 

Due other national banks 138,000 

Due state banks 70,000 

Due trust companies and savings banks 68,000 

Due reserve agents 6,000 

(683) 



Per Cent of 
Total Resources. 

54-i 
7.0 
0.4 

0.2 

8.7 
4.1 
1.6 

7-3 
0.4 
8.6 
7.6 



Per Cent, of 
Total Liabilities. 

9.9 

6.4 

2.0 

6.9 

10.0 

5.0 

4-9 
0.4 



202 The Annals of the American Academy 

Per Cent, of 
Total Liabilities. 

Individual deposits $741,000 53.5 

U. S. deposits 5,ooo 0.4 

Deposits of disbursing office 2,000 0.2 

Bonds borrowed 5,000 0.4 

Total liabilities $1,384,000 100.0 

We have no definite data as to average earnings from each 
item of resources, but from a general knowledge of conditions it 
is quite possible to estimate, not perhaps closely, but with some 
reasonable approximation what such earnings ought under normal 
circumstances to average. 

We may, for example, estimate the average gross return from 
loans and discounts as five per cent., the average yield of United 
States bonds as two per cent., the average yield of bonds, securities, 
etc., held as investments by the bank as four per cent. The items 
"due from national banks and due from state banks" other than 
reserve agents represent in part checks and drafts in process of 
collection, and the return from these items is, of course, small; 
perhaps one per cent, would not be unreasonable. The average 
return from the item "due from reserve agents" we may estimate 
as two per cent. The item "bills of other national banks" represents 
loans to depositing banks, and as it is offset in our average statement 
by the item "due reserve agents," its consideration may be eliminated 
from both sides of the account. The item "cash," of course, yields 
no income return. The item "all other resources" represents bank- 
ing house and other real estate, furniture and fixtures, foreign ex- 
change and other miscellaneous accounts. It is accordingly very 
difficult to make even an approximate estimate of the return from 
this item. If we assume, however, that one-half of it is productive, 
and that this half may yield four per cent., it gives the average return 
for the whole item as two per cent. In addition to the return from 
above items, there is a revenue from collections and miscellaneous 
services which may perhaps average one-quarter of one per cent, 
of total resources. On the other side of the account, our total ex- 
penditures will be made up of interest, expenses, loans and taxes. 

In the statement of liabilities the only items involving interest 
are the various deposit accounts and the item "bonds borrowed." 
The accounts "due other national banks, due state banks and due 

(684) 



Stocks of Financial Institutions 203 

trust companies and savings banks" we may group as deposits of 
other banks and estimate necessary interest charge as perhaps two 
per cent. The item of average interest on individual deposits is 
difficult to estimate, but if we assume that on one-half of these 
accounts no interest is paid and that on the other half it ought not 
to average over two per cent., we may perhaps safely estimate that 
the total interest charge on this item ought not to be over one per 
cent. 

The item "bonds borrowed" is small, and if we estimate the 
interest charge at three per cent., we shall be near enough for practi- 
cal purposes. If, now, we estimate that average annual expenses 
ought not to be over one per cent, of total resources, and that average 
annual losses should not exceed one-half per cent, of total resources, 
we can construct a theoretical income account for our average or 
type bank, as follows : 

Revenue 

From loans and discounts ($747,000) 5% $37,350 

From U. S. bonds ($103,000) 2% 2,060 

From other bonds, securities, etc ($123,000) 4% 4,920 

From accounts due from state and national 

banks other than reserve agents ($79,000) 1% 790 

From accounts due from reserve agents . . . ($101,000) 2% 2,020 

From cash ($119,000) 0% 

From other resources ($106,000) 2% 2,120 

From collections and miscellaneous service, 

T /4% total resources 3,460 

Total $52,720 

Expenditure 

Interest on deposits of other banks ($276,000) 2% $5,520 

Interest on individual deposits ($741,000) 1% 7,410 

Interest on bonds borrowed ($5,000) 3% 150 

Expenses of institution 1% total resources 13,840 

Losses written off *A% total resources 6,920 

Balance for taxes, dividends and surplus 18,880 

Total $52,720 

Let it be understood that this estimate is not intended to show 
with any great accuracy the average earnings of the national banks 
of the United States, but that it is intended only to illustrate a 

(685) 



204 The Annals of the American Academy 

method of analysis which will enable the investor to apply his own 
estimates to the statement of the particular bank whose stock he 
is investigating. If having modified these estimates in accordance 
with conditions which exist in the particular field of this bank's op- 
eration, he finds that its net earnings as reported for a series of years 
are about what his estimates would lead him to expect, he can be 
satisfied that the bank's funds are well handled. 

If reported earnings are much smaller than his estimates would 
indicate, he can rest assured that either interest charges, expenses 
or losses are greater than they ought to be. If on the other hand, 
he finds reported earnings much larger than his estimates would 
indicate, he should be on his guard lest the management in the desire 
for excessive profit should be taking risks not consistent with good 
banking. 

State banks in their general powers and functions are not ma- 
terially different from national banks, except that they are without 
the power to issue circulating notes. As they are examined by and 
report to state instead of national officers, however, the thoroughness 
of their examinations and the effectiveness of their general super- 
vision will depend largely upon the character and efficiency of the 
banking department of the particular state in which they are doing 
business. 

Savings banks in New York, New Jersey and the New England 
states are mutual institutions, and not stock corporations. In most 
of the other states they are organized under the state banking law, 
and are essentially state banks. Trust companies are organized under 
state laws and are subject to examination and supervision by 
the banking department of the state in which they are doing business. 
Their powers and restrictions vary in accordance with the laws of 
their respective states. Speaking generally, they have a much broader 
scope as to the kinds of business they are permitted to do than either 
state or national banks. Their power to act as trustees for individ- 
uals and corporations gives them a field of operations which has 
in many cases proved to be a very profitable one. 

> They are generally restricted as to the investment of their capi- 
tal, but not as to the investment of their surplus, and a result of 
these restrictions has been that in the organization of these com- 
panies and in such increases of capital as are made from time to 
time it has usually been found advisable to have a paid-in surplus 

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Stocks of Financial Institutions 205 

large in proportion to the capital. For this reason the stocks of 
these companies ordinarily sell at prices which to the casual observer 
look much higher than they really are, because these prices are ex- 
pressed in percentage of par value and not in percentage of book 
value. For example, if a trust company has a capital of $1,000,000 
and a surplus of $3,000,000, its book value is 400, and if its stock 
sells at 500, its price is really no higher in proportion to its net 
assets than the stock of a company having its capital paid up in 
full, but no surplus, would be at 125. 

As these companies differ widely in the proportions of the 
various kinds of business done, an intelligent analysis of their state- 
ments requires a much more intimate knowledge of the special con- 
ditions under which each individual company is operating than in 
the case of either state or national banks. As very full reports are 
made to the state banking department, however, the necessary in- 
formation for such analysis is usually obtainable. 

Life insurance companies. The stocks of these companies need 
not, as a rule, be given much thought from an investment point of 
view, as the mutual companies have no stock and the present ten- 
dency of stock companies seems to be toward mutualization. In 
the case of the successful stock companies, moreover, the dividends 
which may be paid upon the stock are usually limited by law, and 
the selling prices of these stocks are ordinarily governed by consid- 
erations entirely apart from their pure investment value. 

Fire insurance companies. There is a large and attractive field 
for investment in the stocks of these companies for the investor who 
can afford to take the necessary risks of the business. For it is a 
business which is in its nature profitable but hazardous. Through 
the law of averages the ordinary ratio of loss to risk can be pretty 
definitely established, but there is the ever-present danger of the 
occasional great conflagration which may wipe out in a few hours 
the accumulated profits of a number of years of successful business. 
Conservative management will, of course, by a proper distribution 
of the general risk over a wide territory guard against this conflagra- 
tion hazard as a real danger to the solvency of the company, but 
the tendency of insurable value to congestion in narrow areas is so 
great that a certain amount of this risk seems to be necessary in the 
successful conduct of the business. 

On the other hand, the fact that premiums are paid in advance 

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206 The Annals of the American Academy 

gives the companies the use at all times of a large fund in addition 
to their own capital and surplus, so that in most companies the in- 
vestment feature of the business is almost as important a factor as 
the underwriting feature. 

In the investigation of an investment of this class, then the 
investor will do well to study the record of a company through a 
series of years both as to its underwriting experience, the percent- 
age of expenses and losses to premiums received, and as to its invest- 
ment experience, and the percentage of income other than premiums 
to the total fund in hand. The data for such analysis is usually 
available, as these companies are under state supervision and are re- 
quired to make annual reports ; and there are unofficial compilations, 
readily obtainable, which give; these items in comparative tables 
extending over a series of years. 

Surety and casualty companies. The investment features of 
these stocks are in general similar to those of fire insurance stocks, 
except that the conflagration hazard is in their case replaced by 
the panic hazard. 

Title insurance and mortgage companies. The business of in- 
suring titles to real estate and that of selling real estate mortgages 
guaranteed as to principal and interest, though entirely distinct in 
theory, are practically so closely connected that they are usually 
carried on by two affiliated companies, each of which serves as a 
feeder for the other. 

As it is necessary that such companies should have large capital 
in order that their guarantees may command respect, and as their 
business is of necessity local in its character, and to be profitable 
must be done in large volume, such companies have, as a rule, con- 
fined their operations to the larger cities. In New York they have 
been unusually successful, and their stocks are regarded very fav- 
orably. 



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THE WRONGS AND OPPORTUNITIES IN MINING 
INVESTMENTS 



By Francis C. Nicholas, Ph.D., 
Economic Geologist-Mining Engineer, New York City. 



Because mining is so good, and so profitable, there are many 
who by deceiving seek gain unworthily ; because righteousness is so 
good, and so desirable, there are many who by hypocrisy make false 
pretense ; yet because of the hypocrites we do not turn from reli- 
gious sentiments, and neither should we, because of the deceivers, 
condemn mining. The evils which have developed in mining invest- 
ments are not because such investments are bad, but because they 
are so good that those who seek to gain by deception find in mining 
stocks a convenient medium for their operations. It is probable that 
greater loss follows the promiscuous use of capital in mining trans- 
actions than in any other form of investment, excepting only specu- 
lation on margin, though such dealings should perhaps be classed as 
gambling, and given no consideration among investments. If mar- 
gin speculation is not to be considered as having a place among 
investments, then mining shares are the most uncertain. Yet among 
all investments, not anywhere are such profits obtained as in success- 
ful mining. 

Here we have a series of anomalies, the best, and the worst in 
sharp contrast; and our object will be to consider these contrasting 
situations in an endeavor to find, if it may be, some basis on which 
to construct an outline for a better understanding of the advantages 
and disadvantages of mining investments. In considering our sub- 
ject, losses must be noted in a great majority of instances, and these 
losses, while referable to numerous adversities, may be traced to 
three distinct influences : One, questionable practices on the part of 
some mining engineers and mining geologists ; another, inefficiency, 
and often absolute dishonesty on the part of those who are officers, 
and managers in a mining corporation ; and, finally, the most potent 
of all, lack of funds to carry the enterprise to a successful termina- 
tion. 

In taking up the consideration of these fundamental causes out 

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2o8 . The Annals of the American Academy 

of which adverse conditions are developed to the detriment of 
mining investments, it is reasonable to criticize practices which 
are far too common among a certain class of mining engineers, and 
geologists. We claim in the profession to be a very virtuous lot 
of men, yet on the average, I suppose, we are no better, neither are 
we worse, than the ordinary run of humanity. Often a mining 
engineer, or mining geologist will want business ; perhaps to obtain 
work will be an urgent necessity, and under the stress of such cir- 
cumstances, how easy it is to make a low estimate of costs, and 
encourage people to undertake a mining venture. The engineer 
who estimates the cost of a railway section, or a bridge, or the 
architect who makes his specifications for a building must be exact, 
and accuracy is expected ; but in mining there is always an element of 
uncertainty, and this affords a convenient excuse, if one wishes to 
take such an advantage. The mining engineer, or the mining geol- 
ogist, was not dealing with known conditions, always an excuse 
can be found, and the temptations to underestimate the cost of 
mining are ever present. Low prospective costs, and exaggerated 
expectations, have started many a mining enterprise on a series 
of adversities. Excuses are plenty, worse things are constantly 
done in ordinary business ; a little encouragement to get the people 
in, that work may be started, they will put up some money later 
rather than lose the investment ; people are always slow to rule on 
a bad account ; if they were told all at the start, they might not take 
the proposition, and the mining man wants employment. He 
assures himself that the mine will make handsome profits in the 
end ; it is only good business to get the work started ; the people 
will make money enough after a time when the mine is developed, 
though they may be kept on the anxious seat for quite a period. 
Where an engineer has once surrendered to the temptation, and 
obtains business by underestimating costs, and exaggerating expec- 
tations, worse acts usually follow. When I was a very young man, 
I had a call to some work on a proposition where the engineers 
had underestimated, yet in spite of this the enterprise was well 
accredited, and prominently before the public. The work I had 
was of minor importance, part of my duties relating to supplies, and 
I promptly expressed my disapproval of the operations. Prices 
were entered on the vouchers at considerably higher rates than 
actual cost, and a surplus of material was always called for in the 

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Opportunities in Mining Investments 209 

daily requirements, but if supplies were left over they were used 
the next day though the full daily allowance was entered on the 
vouchers as new material required. All the allowances were liberal, 
there was a good saving for somebody, and it was not for the mine 
account. I protested against this kind of work, and resigned my 
appointment. It might be more correct to say that I was fired, and 
told to go home to my mother, that I would never make any money 
at mining. In this I am happy to say that those who were in 
charge of the proposition were decidedly in error. Another thing 
is very certain, the enterprise on which they were engaged was a 
disastrous failure. I heard later that they had saved something 
like a hundred and fifty thousand dollars before the stockholders 
grew tired of putting up more money on estimates which were far 
from adequate. 

This is an aggravated case of real dishonesty on the part of 
men who did not profit in. the end, and were finally ordered out of 
one prominent banking house, and were almost bodily kicked out 
of another. Being men of extravagant tastes, they were out of 
money after a time, and since then have not been of much use to 
themselves or anybody else. It gives me some satisfaction to state 
that these men were of the persuasive variety among mining 
engineers, the self-dubbed knights and chevaliers of the profession, 
who assumed the name, but had no real authority for the distinction 
of mining engineer. Let no one suppose from this that a mining 
engineer, or a mining geologist cannot be self-made. Many of our 
best men have worked their way by hard, faithful application, and 
by their labor have reached positions of responsibility because of 
the excellence of their work. Such engineers are often eminent in 
their superiority over others who have had the advantages of early 
technical training. 

The results which follow an estimate made too favorable by a 
mining engineer anxious to obtain work can be readily understood. 
The engineer is given employment, and in time, probably before very 
long, more money is required, urgently needed in fact, for without 
it work must be stopped and all the investment lost. Appeals are 
made to the stockholders, but those who have purchased the shares 
will, under such circumstances, become suspicious, and most do not 
respond ; the enterprise flounders along for a time, and then as a 
usual result collapses, and the investors have lost their money. The 

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210 The Annals of the American Academy 

mine may have been good, but the necessary work to secure returns 
could not be completed, and the effort ended in disaster. Such fail- 
ures are all too frequent ; and here the investor in mining stocks finds 
one of his greatest difficulties because it is hard to judge the worth 
and accuracy of an estimate made by a mining engineer, or a mining 
geologist. One thing an investor can do, look up the record of the 
man who makes the report and estimate. If he has been connected 
with successful mines, and if he has kept his clients out of unsuc- 
cessful ventures, he is a good man to follow; but if his work has 
been in error, and his estimates inaccurate for others, though he 
is ever so learned, it might be well to have a care in risking money 
on his recommendations. 

In considering a mining proposition, it should be remembered 
that in every instance the reports of men skilled in three distinct 
branches of the profession are desirable ; and that to become a 
master of more than one distinct branch of a profession in these days 
of amplification, and detail, would seem a heavy burden for a single 
life. Yet in many instances, mining engineers attempt to be geol- 
ogists, chemists, and engineers all in one, though the requirements 
for each subject are technical, and necessitate different work in 
training and thought, in order to attain proficiency. It is probable 
that the multiplicity of subjects, and consequent variations of detail 
with which the mining engineer attempts to deal, cause many an 
unfortunate, but honest inaccuracy in estimating the costs to be 
incurred in order to obtain results from a mining property. The 
geologist requires years of study, and field observation to attain 
proficiency; the chemist and metallurgist must give long attention 
to patient study, and experiment, in order to accurately prescribe 
the treatment an ore may require, and the engineer must work, 
and study the problems of construction, maintenance, and practical 
mechanics before he can, with assurance of good results, design, 
and operate the equipment and machinery which a mine may 
require. It would be a rare genius indeed who could combine all 
these technical branches of the mining profession in the operations 
of one person. Many attempt it, but few succeed, and in most 
instances the mines they endeavor to operate are dismal failures, 
for always some unexpected or unforeseen condition develops 
which prevents success. The engineer makes excuses, but the fact 

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Opportunities in Mining Investments 211 

is he did not know what he was about, having attempted too much, 
and disaster is the natural result. 

It is correct to state that the best and most successful mine 
operators and companies maintain technical men in the three depart- 
ments. The mining geologist explores, opens the mine, and exposes 
the ore bodies ; the chemist and metallurgist tests the ores, and 
prescribes the treatment which will result in the best returns. These 
two having finished their work, the mine is turned over to the 
mining engineer, who designs his machinery, and equipment, to 
meet the conditions which have been proven, establishes the con- 
struction, and operates the property ; calling on the mining geologist, 
when required, to trace out and uncover the ore bodies ; and on the 
mining chemist to ascertain from time to time whether changes 
have developed in the character of the ore which requires modifica- 
tions in its treatment in order to obtain the best results. Under such 
careful operations, a mine will not be worked to disadvantage ; 
neither will operations be started, or work maintained, under condi- 
tions which are not favorable. 

I have frequently been asked by students which branch of tech- 
nical mining work will probably result in continued profitable 
employment. I have always advised the mechanical work. A mine 
is examined, the ore bodies opened and the kind of treatment pre- 
scribed once, in most propositions ; but the property will be worked 
three hundred and sixty-five days in the year, and in many instances 
during the nights as well ; as a consequence the mechanical and 
engineering requirements for the work cause a greater demand, and 
offer greater opportunities, for steady and profitable employment. 

To the person who invests in mining stocks the question of 
whether efficiency is shown by the organization soliciting the use of 
his money, is of great importance. Fortunately this question is 
not difficult of solution. If the efficiency is good the corporation 
will be able to refer to technical men of standing who will regularly 
report the progress of the work. If a mining enterprise asks for 
support, and cannot give proof that its work is on an efficient basis, 
through the reports of technically trained men, one good reason 
is develped which should be sufficient warning against the proposi- 
tion. The merest bungler may have luck in a mining venture, 
yet it is well to remember the technicalities of mining, and not trust 

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212 The Annals of the American Academy 

to luck, for luck is a fickle guide leading, with rare exceptions, to 
nothing but disaster and ruin. 

We have considered questionable acts on the part of profes- 
sional men, and lack of skill at the disposition of those who conduct 
mining enterprises : these are potent influences leading to disaster 
in mining operations ; but there is another, and more disastrous 
cause which leads to loss, and this is the lack of funds to carry an 
enterprise to success, so palpably evident in the great majority of 
mining propositions asking investors for the use of their money. 
Where funds are lacking losses result, not because the mine lacked 
merit, but because money was not obtained in sufficient amount to 
carry the proposed operations to a successful termination. In 
almost every instance, where shares are offered for sale, the lack 
of funds is demonstrated because the offerings of shares are made 
coupled with the statement that treasury stock is being sold to 
provide a mill, to develop the mine or for some other purpose. 
Details vary, but the basis of the proposition is always the same, 
sales of stock are to provide the funds to make the mine profitable. 
In such offerings, two conditions are self-evident ; one that the mine 
as it stands is not productive, the other that except sufficient shares 
are sold it cannot become productive. In such propositions the 
investor is invited to participate in all the risks of mining, coupled 
with the uncertainties of raising money; certainly not a very favor- 
able proposition. It is more unfavorable, than will appear when first 
considered, because of the fact that mining stocks are very difficult 
to sell, and that most stock selling propositions are forced to meet 
their general expenses out of the proceeds of the sales of the shares 
which are being offered. Usually returns do not come in rapidly 
enough to meet these requirements, and provide the money needed 
to work the mines, and this being the case, the purchaser of a 
mining stock is not putting money in a mine, he is simply providing 
funds to maintain the stock selling end of the proposition. The 
managers of such enterprises are prone to state in their offerings 
that they do not receive salaries, but they do have expense accounts, 
and these amount to the same thing, in fact they usually amount 
to a little more. 

No investor should be caught in this game. Where 
a proposition offering shares betrays its financial weakness 
by stating that the officers are philanthropic, doing their work 

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Opportunities in Mining Investments 213 

for nothing, and that the corporation is offering shares to provide 
the means for developing work which those principally interested 
in the company are not financially able to do for themselves, then 
the investor should remember that the chances that the financially 
weak men will ever obtain the money they seek by stock selling 
are so remote that the prospect is poor indeed ; and most probably 
the improvements will never be secured, because the money given 
for shares will go into the expense account to gradually disappear 
in expenditures for the maintenance of those who manage the 
proposition. Such a game can be worked for some time, the 
managers live, and get along; but the money comes in too slowly, 
in the vast majority of instances, to provide for more than 
the expenses of the executive side of the corporation. Under such 
circumstances the proposition can result only in loss for those who 
may invest, and when an offering of this kind is presented, investi- 
gation from an investor seems scarcely necessary, the disadvantages 
are self-evident. If investigations are undertaken, in regard to 
philanthropic propositions so frequently offered in which those who 
manage give their services without compensation, the investor might 
well ask what proportion of the prospective product of the mine is 
represented by the shares offered for sale. If the stock book were 
examined, it would, in most instances, be found that only from ten 
to twenty-five per cent of the shares are available for sale, and that 
these shares must provide all the money to operate the mine, the 
promotors and managers taking the balance. On this basis the 
count is, one for you the investors, and three up to nine for us the 
managers and promoters — not a very fair proposition, and one which 
investors can most assuredly let alone, and in which they find it an 
advantage not to have participated. 

It would seem that all the influences of questionable financier- 
ing had settled as a blight over mining enterprises, yet always there 
is a restless energy manifesting itself in the eager search for mines, 
and the desire on the part of many persons to participate in mining 
enterprises. It is unquestionably an advantage to civilization that 
this is the case, for we could not exist without the products of the 
mines. Coal for our fires ; iron, copper, and other metals for uten- 
sils and machinery; oil to light our lamps, materials for construc- 
tion, and gold to supply a medium by means of which the com- 
plicated relations of commerce can be sustained — all of these we must 

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214 The Annals of the American Academy 

have, or our civilization will cease to exist; and perhaps it is well 
that we risk and dare so much in mining ventures, for were it other- 
wise it might be that the mines would remain unoperated. 

It is not mining, but the abuses of mining which are worthy 
of public censure. To sell mining shares is right and proper; he 
who succeeds in establishing a mine is a public benefactor; and 
there are many mining enterprises so organized that they are worthy 
of all praise. Especially is this true of mining propositions put 
forward on a subscription basis, with nothing to be paid until enough 
money is subscribed, and pledged, to carry out the specifications 
of competent engineers. Such subscriptions offered for a mine 
which has been examined by a suitably qualified mining geologist, 
are in every way desirable, and participation can be taken with 
confidence; though the investor should always remember that even 
where the greatest skill is exercised, mining can never be entirely 
free from risk and the vicissitudes of unknown conditions, conse- 
quently no one should, under any circumstances, put money in 
a mining venture which is essential to him. Money which repre- 
sents conveniences can be risked, money which is required for 
essentials should never be put at hazard ; and mining is, and always 
will be, a risk. That it is a popular risk is proven by the diversity 
of contrasting human influences with which it is involved. We 
find the multi-millionaire rich from the product of his mines, and 
the ruined prospector begging for a little money with which to 
sustain life, while he once more goes in search of a mining prize. 
We find the respected bankers and brokers of the great stock 
exchanges trading in shares of mighty combinations of mines, and 
in the same cities questionable promoters, and stock sellers, offering 
doubtful shares in propositions of elusive promises. We find also 
esteemed professors, eminent geologists, and noted mining engineers, 
in sharp contrast with dishonest graduates, underestimating to 
obtain a job, and grafting to secure profits ; and the so-called mining 
experts, picturesque men who do their mining in bar rooms and hotel 
corridors ; and the adventurers claiming knowledge unworthily with 
glib pretense in order to obtain money on propositions where no 
values exist. 

This is mining, the daring, the enthralling; where in 
varying results examples are found of affluence and starvation; 
achievement, and failure; honors, and crimes — all struggling and 

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Opportunities in Mining Investments 215 

striving together; and the prize is wealth, glittering magnificent 
wealth. Is it any wonder that people buy mining stocks? Con- 
sider a moment how great is the incentive. Most men in ordinary 
circumstances will die under the yoke of their occupations, or will 
reach a time when, after a life of labor which has produced only 
enough for a decent maintenance, they can work no more, and must 
become charges on the indulgences of others. Thus in most lives 
it must be, because in these days of competition, exactions, and 
high costs few men can earn and save a competency. Under such 
circumstances, the chances of mining where a little placed at risk 
can produce, and frequently has produced, a competency, must 
always be alluring. The opportunity is real, a little money is risked 
for the chance of obtaining so great a prize, and it is reasonable 
and right that the risk should be taken ; but not in response to 
seductive enticings from designing men. The risk should be judici- 
ously taken, with the full knowledge that an element of chance must 
attend all mining ventures, and that nothing should be placed at 
hazard, excepting such amounts as can be lost without disaster. 
Before taking the risks one should require to be shown proofs that 
the proposition is in capable and honest hands. 

To give such proofs adequately the mine must be reported on, 
and recommended as desirable by a competent mining geologist. The 
prospectus must show plans and specifications by a competent mining 
engineer, stating what amounts are required for improvements in 
order to obtain results, and his record must show that he has been 
correct in previous estimates. Those who are to manage the enterprise 
must show that they have at their command reliable men possessing 
technical skill, and finally the most important of all, those who are 
interested in the enterprise must be able to show that they who 
invest will be associated with men of sufficient wealth to carry the 
proposed operations to a conclusion ; or they must demonstrate the 
validity of their proposition by asking only that money should be 
subscribed payable on condition that enough is pledged to operate 
the proposition, and bring the proposed work to a conclusion. 
Such conditions being demonstrated, and investors taking only the 
propositions offering suitable proofs, mining investments would 
tell an entirely different story. Yet losses would be made, for 
where a great profit is to be had there must be a corresponding 
risk; but in mining, if technical skill, honesty and sound financial 

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216 The Annals of the American Academy 

methods are made available to investors, the chances for success 
are much greater than are the chances of a failure. Yet, though 
theories may be advanced, and rules of procedure published, the 
wiles of those who seek to obtain money by questionable methods 
will always be an adverse influence among mining propositions; 
and it is a matter of grave concern that so many people should 
lose money. 

So serious is this matter that it has received attention 
from our law-makers, and means have been provided in easy legal 
procedure to call to a judicial accounting any group of men who 
lose the money invested in a corporation which was under their 
management. To lose money in honest effort is no crime; and if 
only it were an established custom in our country to invoke the 
law, and require an accounting before the courts wherever money 
is lost in corporations, those who sell stocks, and manage enter- 
prises dishonestly, would be more careful. To men who lose cor- 
porate money in honest effort the accounting would be a benefit 
through which they would be cleared of reproach ; but if dishon- 
esty, waste, or extravagance were shown, punishment would be 
meted out, and would be richly deserved. Investors would by 
taking stern measures, and by calling to account every corporate 
failure, render a service to their fellow citizens, to their country, 
and to themselves, because with a few examples of stern justice the 
whole fabric of misrepresentation would become too dangerous a 
proposition, and investors could make money through the purchases 
of stocks. It is to be feared, however, that American investors 
will remain submissive under loss. "Like lambs led to the slaugh- 
ter,'' they will bleat a little over their misfortunes, but that is all. 
Promoters and stock manipulators will sneer derisively, and the 
game will go on. Mining stocks will probably continue the prin- 
cipal medium for seductive wooings to charm the dollars from 
needy pockets, and mining, one of the greatest, most essential, and 
most profitable among enterprises will still be spoken of as a 
reproach. This will not always be: people are becoming educated 
in finance, influences are abroad in our land through which mediums 
for instruction will be developed, we may be sure that a change is 
coming; and that presently, in matters relating to mining invest- 
ments, the wrongs of the past will be righted in the opportunities 
and benefits of the future. 

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BIBLIOGRAPHY ON SECURITIES AND STOCK 
EXCHANGES 



By S. S. Huebner, Ph.D., 
Professor of Insurance and Commerce, University of Pennsylvania, 

Philadelphia. 



GENERAL WORKS 

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Japanese Bonds. Wellesley Hills, Mass.: By the author. 
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W. H. Black, Real Wall Street: Understandable Description of a Purchase, 

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D. T. Callahan, Wall Street. New York: Cambridge Encyclopedia Com- 

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218 The Annals of the American Academy 

C. A. Conant, Wall Street and the Country. New York: G. P. Putnam's 

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York: W. E. Davis, Jr., 1908. 
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Options. Wellesley Hills, Mass. : R. W. Babson. 
T. H. Dewey, Legislation Against Speculation and Gambling in the Forms of 

Trade. New York: Baker, Voorhis & Co., 1905. 
Charles Duguid, How to Read the Money Article. Wellesley Hills, Mass. : 
R. W. Babson. 

Story of the Stock Exchange {London). New York: E. P. Dutton 

& Co., 1902. 
The Stock Exchange. London: Methuen & Co., 1904. 

Francis L. Eames, The New York Stock Exchange, 1894. 

Rudolph Eberstadt, Der Deutsche Kapitalmarkt. Leipzig: Duncker & Hum- 
blot, 1901. 

Edwin C. Eckel, The Portland Cement Industry from a Financial Stand- 
point. New York : Moody Corporation. 

Henry C. Emery, Speculation on the Stock and Produce Exchanges in the 
United States. New York: Macmillan Company, 1904. 

Ten Years' Regulation of the Stock Exchange in Germany. New 
Haven, Conn. : Yale Publishing Association, 1908. 

M. T. England, On Speculation in Relation to the World's Prosperity (1897- 
1902). University of Nebraska Studies, May 5, 1906. 

W. E. Forrest, The Game in Wall Street and How to Play it Successfully. 

New York : J. S. Ogilvie Publishing Company, 1898. 
W. W. Fowler, Ten Years in Wall Street; or, Revelations of Inside Life, 
and Experience on 'Change. Hartford, Conn. : Dustin, Gilman & Co., 
1870. 

Twenty Years of Inside Life in Wall Street. New York: Orange 
Judd Company, 1880. 

(700) 



Bibliography 219 

E. H. Gay, Municipal Bonds; a Consideration of the Various Classes of 
Municipal Bonds, Railroad Bonds, etc. Boston: Damrell & Upham, 1890. 

G. R. Gibson, Stock Exchanges in London, Paris and New York. New York : 

G. P. Putnam's Sons, 1889. 
Thomas Gibson, Cycles of Speculation. New York : Gibson Publishing Com- 
pany, 1907. 

Increasing Gold Supply. New York: Gibson Publishing Company. 
Market Letters, 1907. New York : Gibson Publishing Company, 1908. 
The Pitfalls of Speculation. New York: Gibson Publishing Com- 
pany, 1909. 
Special Market Letters (1908), New York: Gibson Publishing Com- 
pany. 
Special Letters (1909). New York: Gibson Publishing Company, 

1909. 
Weekly Market Letters (2 vols. 1908). New York: Gibson Publish- 
ing Company, 1909. 
Weekly Market Letters for 1909. New York : Gibson Publishing 
Company, 1909. 
H. Hall, How Money is Made in Security Investments (3d edition). New 

York: Henry Hall, 1908. 
Richard S. Harvey, Rights of the Minority Stockholder. New York : Baker, 

Voorhis & Co., 1909. 
G. G. Henry, How to Invest Money. New York : Funk and Wagnalls Com- 
pany, 1908. 
Leonard R. Higgins, "Put and Call." Wellesley Hills, Mass. : R. W. Babson. 
John Hill, Jr., Gold Bricks of Speculation. (A study of speculation and 
its counterfeits, and an expose of the methods of bucketshop and "get- 
rich-quick" swindles.) Chicago: John Hill, Jr., 1904. 

F. T. Hill, Story of a Street (Wall Street). New York: Harper & Bros., 

1908. 
Byron W. Holt (Ed.), The Gold Supply and Prosperity. New York: 

Moody Corporation. 
How to Invest Trust Funds. Wellesley Hills, Mass. : R. W. Babson. 
How to Manage Capital Invested in Stock Exchange Securities. Wellesley 

Hills, Mass. : R. W. Babson. 
A. P. Howard, X Y Z of Wall Street. New York: Nantucket Publishing 

Company, 1902. 
T. L. Hume and E. E. Thompson, Washington Securities. Washington: 

Hume & Thompson, 1905. 

G. D. Ingall and G. Withers, Stock Exchange (London). New York: 

Longmans, Green & Co., 1904. 
George McLean Irwin, Speculation a Science. Wellesley Hills, Mass. : R. 

W. Babson. 
N. Johannsen, A Neglected Point in Connection with Crises. New York: 

Moody Corporation. 
E. D. Jones, Economic Crises. New York: Macmillan Company. 

(701) 



220 The Annals of the American Academy 

Clement Juglar, Brief History of Panics (edited by De C. W. Thorn, 1897). 
New York: G. P. Putnam's Sons. 

Keyes, Wall Street Speculation. New York: Columbia University Press, 

1904. 
J. King and others, Investments {In "Management of Private Affairs"). 

New York: Oxford University Press, 1908. 
M. King, The New York Stock Exchange. New York: M. King, 1904. 

William Jett Lauck, Causes of the Panic of 1893. New York: Moody 
Corporation. 

E. Lefevre, Wall Street Stories. New York: McClure, Phillips & Co. 
Lessons of the Financial Crisis. By Cortelyou, Vanderlip, Treat, Ridgely 

and Schiff. New York: Moody Corporation. 

Lessons of the Financial Crisis. Philadelphia : American Academy of Po- 
litical and Social Science, March, 1908. 

Henry Lowenfeld, Investment, an Exact Science. Wellesley Hills, Mass. : 
R. W. Babson. 

F. Lownhaupt, Investment Bonds. New York: G. P. Putnam's Sons, 1908. 

M. S. McConihe' and J. E. Coakley, Business of Wall Street. New York : 

McConihe & Co. 
I. F. Marcosson, How to Invest Your Savings. Philadelphia: Henry Alte- 

mus Company, 1907. 
A. W. Margraff, International Exchange, its Terms, Operation and Scope. 

New York : Moody Corporation, 
Frederick C. Mathieson and Sons, Stock Exchange Values. Wellesley 

Hills, Mass. : R. W. Babson. 
J. K. Medbury, Men and Mysteries of Wall Street. Boston ; Jas. R. Osgood 

& Co., 1876. 
Mining and Mining Investments. London: Methuen & Co. 
Mining Dividends and Rights. Wellesley Hills, Mass.: R. W. Babson. 
John Moody, Art of Wall Street Investing. New York : Moody Corporation, 

1906. 

Investor's Primer. New York : Moody Corporation, 1908. 
The Truth About the Trusts. New York: Moody Corporation. 
J. Moody and J. F. Hume, Art of Wise Investing. New York: Moody Cor- 
poration, 1904. 
Floyd W. Mundy, Relative Merits of Railroad Stocks and Bonds. New 

York: James Oliphant & Co., January 20, 1909. 
Municipal Bonds. New York : N. W. Harris Company, 1894. 

S. A. Nelson, The A B C of Options and Arbitrage. New York: By the 
- author, 1904. 

The A B C of Stock Speculation. New York : By the author, 1903. 
The A B C of Wall Street. New York: By the author, 1900. 
Consolidated Stock Exchange of New York, its History, Organiza- 
tion, Machinery and Methods. New York: By the author, 1907. 

(702) 



Bibliography 221 

F. C. Nicholas, Mining Investments and How to Judge Them. New York: 

Moody Corporation, 1908. 
Eliot Norton, A Simple Purchase and Sale Through a Stockbroker. Har- 
vard Law Review, VIII, No. 8. 

On Buying and Selling Securities Through a Member of a Stock Ex- 
change. New York : Baker, Voorhis & Co., 1896. 
On "Short Sales" of Securities Through a Stock Broker. New York: 

John McBride Company, 1908. 
Statistical Studies in New York Money Market. New York: Mac- 
millan Company. 
A. D. Noyes, Forty Years of American Finance. New York: Moody Cor- 
poration. 

Sereno S. Pratt, Work of Wall Street. New York : D. Appleton & Co., 
1902. 

Report of Governor Hughes' Committee on Speculation in Securities and 
Commodities. June 7, 1909. 

Marc M. Reynolds, The Investor's Catechism. New York: Moody Cor- 
poration. 

T. D. Richardson, Wall Street by the Back Door. New York: Wall Street 
Library Publishing Company, 1902. 

Karl Rodbertus, Overproduction and Crises. (Introduction by Prof. John 
B. Clark.) New York: Moody Corporation. 

F. W. Rollins. Financial Courtship; or, a Plea for Conservative Invest- 
ments. Boston: E. H. Rollins & Sons, 1906. 

Montgomery Rollins, Lazvs Regulating the Investment of Bank Funds. 
Wellesley Hills, Mass.: R. W. Babson. 

Money and Investments. Boston : M. Rollins, 1907. 

M. H. Smith, Bulls and Bears of New York; with the Crisis of 1873 and the 

Cause. Hartford, Conn. : J. B. Burr Publishing Company, 1876. 
R. E. Smith, Theory of Investment and Speculation. Minneapolis : Hahn & 

Harman, 1904. 
R. M. Smythe (comp.). Obsolete American Securities and Corporations. 

New York: R. M. Smythe. 
Carl Snyder, American Railways as Investments. New York: Moody 

Corporation. 
C. E. Sprague, Accountancy of Investment. New York: Business Publishing 

Company, 1905. 

Problems and Studies in the Accountancy of Investment. New York: 
By the author, 1906. 

Wm. Y. Stafford, Safe Methods in Stock Speculation (2d ed. 1902). Chi- 
cago : Frederick J. Drake & Co. 

E. C. Stedman, History of the New York Stock Exchange. New York: 
Stock Exchange Historical Company, 1904. 

E. C. Stedman and A. N. Easton (Eds.). New York Stock Exchange. 
New York : Stock Exchange Historical Company, 1905. 

(703) 



222 The Annals of the American Academy 

W. J. Stevens, Investment and Speculation in British Railways. New York: 
Moody Corporation. 

Stock Exchange Investments ; History, Practice and Results. London : Simp- 
kin, Marshall, Hamilton, Kent & Co., 1900. 

Success in Speculation. New York: Standard Publishing Company, 1888. 

Wm. G. Sumner, Specimens of Investment Securities for Classroom Use. 
New Haven, Conn. : Edward P. Judd Company, 1901. 

United States Laws, Statutes, etc., Covering Savings Bank Investments in 
Bonds. New York: N. W. Halsey & Co., 1906. 

O. G. Villard, Early History of Wall Street, 1653-1789. New York: G. P. 

Putnam's Sons, New York, 1897. 
Wall Street Summary (news of corporations and investments). Wellesley 

Hills, Mass. : R. W. Babson. 
Warren, How to Deal with Your Broker. Wellesley Hills, Mass. : R. W. 

Babson. 

H. M. Williams (pseud.), Key to Wall Street's Mysteries and Methods. New 

York: M. W. Hazen Company, 1904. 
Thomas F. Woodlock, The Anatomy of a Railroad Report and Ton-Mile 

Cost. New York: S. A. Nelson, 1900. 
L. W. Zartman, Investments of Life Insurance Companies. New York: 

Henry Holt & Co., 1906. 



LEADING LEGAL TREATISES 

American and English Encyclopedia of Law, "Bonds," II, 448-46711. 
American and English Encyclopedia of Law, "Stock," XXIII, 582-698. 
American and English Encyclopedia of Law, "Stock Exchanges," XXIII, 

748-775- 
American and English Encyclopedia of Law, "Stock Holders," XXIII, 776- 

899. 
American and English Encyclopedia of Law, "Stock-brokers," XXIII, 699- 

748. 
Arthur and George Biddle, Treatise on the law of stock brokers (1882). 

Philadelphia: J. B. Lippincott & Co. 
W. H. Burroughs, Treatise on the law of public securities in America (1881). 

Jersey City, N. J. : Frederick D. Linn & Co. 
C* Cavanagh, Law of money securities (1879). London: Stevens & Sons. 
G. C. Clemens, Law of corporate securities, as decided in the Federal courts 

(1877). St. Louis: W. J. Gilbert. 
William Colebrooke, Treatise on the law of collateral securities as applied 

to negotiable, quasi-negotiable and non-negotiable choses in action (2d 

ed. 1898). Chicago: Callaghan & Co. 

(704) 



Bibliography 223 

William W. Cook, A treatise on stock and stockholders, bonds, mortgages, 
and general corporation law, as applicable to railroad, banking, insurance, 
manufacturing, and other private corporations (2 vols., 3d ed., 1894). 
Chicago : Callaghan & Co. 

Jno. R. Dos Passos, Treatise on the lazv of stock brokers and stock ex- 
changes (2 vols. 1905). New York: Banks.Law Publishing Company. 

B. T. Hainer, Treatise on the modern law of municipal securities (1898). 
Indianapolis : Bobbs-Merrill Company. 

A. Hale, Jr., Investment laws; with appendix explaining the manner of com- 
puting bond values (1895). Boston: A. Hale, Jr. 

W. H. Harris, Laws governing the issuing, transfer and collection of 
municipal bonds (1902). Cincinnati: W. H. Anderson & Co. 

Eugene D. Hawkins, "Rights of minority stockholders and what legislation, 
if any, is needed for their protection," in New York State Bar Associa- 
tion Reports, XIII, 1889, pp. 187-210. 

Arthur L. Helliwell, Treatise on stock and stockholders, covering watered 
stock, trusts, consolidations and holding companies (1903). St. Paul: 
Keefe-Davidson Law Book Company. 

E. A. Howes, Jr., American law relative to income and principal (1905). 
Boston : Little, Brown & Co. 

Samuel M. Israeli, The nature of the liability of shareholders of a corpora- 
tion, under statute imposing a liability additional to that for stock sub- 
scribed (1900). Philadelphia: Avil Printing Company. 

Leonard A. Jones, Treatise on the law of corporate bonds and mortgages 
(1907). Indianapolis: Bobbs-Merrill Company. 

Leonard A. Jones, Treatise on the law of pledges, including collateral securi- 
ties (2d ed. 1901). Indianapolis: Bobbs-Merrill Company. 

Abbott Lawrence and Francis C. Lowell, Transfer of stock in private cor- 
porations (1884). Boston: Little, Brown & Co. 

J. J. Rahill, Corporation accounting and corporation law, . . . and a 
treatise on stock exchanges (1906). San Francisco: J. J. Rahill. 

Schwabe and Branson, Treatise on the laws of the stock exchange. Wel- 

lesley Hills, Mass. : R. W. Babson. 
E. L. Short, Law of railway bonds and mortgages in the United States of 

America, with illustrative cases from English and colonial courts (1897). 

Boston : Little, Brown & Co. 
Paul F. Simonson, Law relating to debentures and debenture stock. Wel- 

lesley Hills, Mass. : R. W. Babson. 
T. C. Simonton, Treatise on the law of municipal bonds of the municipal 

corporations of the United States, including bonds issued to aid railroads 

(1896). New York: Banks Law Publishing Company. 
G. Herbert Stutfield, Rules and usages of the stock exchange (London, 3d 

ed. 1901). London: Effingham, Wilson & Co. 

(705) 



224 The Annals of the American Academy 

Seymour D. Thompson, Treatise on the liability of stockholders in corpora- 
tions (1879). St. Louis: F. H. Thomas & Co. 



LEADING COURT CASES 

Baker vs. Drake, 53 N. Y. 211 (Measure of damages against brokers for 

failure to comply with orders). 
Bibb vs. Allen, 149 U. S. 481 (Relative to usages in the brokerage business). 
Board of Trade vs. Christie, 116 Fed. 944 (Rights of property in quotations 

possessed by exchanges). 
Burkitt vs. Taylor, 86 N. Y. 618, sub nom. Burkitt vs. Taylor, 13 W. D. 75 

(When a broker may terminate transactions). 
Burkitt vs. Taylor, 13 W. D. 75 (Relative to length of time within which 

the broker may execute an order). 
Cameron vs. Durkheim, 55 N. Y. 425 (When a broker may terminate trans- 
actions). 
Clews vs. Jamieson, 182 U. S. 461 (Relative to usages in the brokerage 

business). 
Daniels (John H.), In re, 13 Nat'l Bankr. Reg. 46 (Broker must take notice 

of the bankruptcy of his customers). 
Duncan vs. Hill, L. R. 8 Ex. 242 (Relative to the extent to which customers' 

margin and pledged securities are protected). 
Dykers vs. Allen, 7 Hill (N. Y.) 497 (Relative to the loan of securities in 

a "short" sale). 
Evans vs. Waln, 71 Pa. St. 69 (Relative to usages in the brokerage business). 
Galigher vs. Jones, 129 U. S. 193 (A broker must follow directions of client 

or give notice that he declines the agency). 
Hoffman vs. Livingston, 14 J. and S. (N. Y.) 552 (Relative to discretionary 

orders). 
Horton vs. Morgan, 19 N. Y. 170 (Relative to stock broker's custom of not 

giving up the name of his principal). 
Hyde vs. Woods, 94 U. S. 523 (Relative to the use of the proceeds from the 

sale of a "seat" in satisfying claims of members of the exchange in 

preference to other creditors). 
Ireland vs. Livingston, L. R. 5, H. L. 395 (Interpretation of ambiguous 

orders). 
Isham vs. Post, 141 N. Y. 100, 105 (Denning the degree of diligence and 

care a broker must exercise in executing orders). 
Knapp vs. Simon, 96 N. Y. 284 (Relative to the right of a broker to sue and 

be sued on his contract although acting for an undiscovered principal). 
Lacey vs. Hill, L. R. 8, Ch. App. 921 (When broker may terminate trans- 
actions). 

(706) 



Bibliography 225 

Lombardo vs. Case, 30 How. Pr. (N. Y.) 117 (Relative to usages in the 

brokerage business). 
Markham vs. Jaudon, 41 N. Y. 235 (Relative to duties and obligations of a 

broker and customer in a speculative transaction). 
Marland vs. Stanwood, 101 Mass. 470 (Broker may buy less than the total 

amount stated in the order). 
Matter of Renville, 46 App. Div. (N. Y.) 37 (Rights of property in quota- 
tions possessed by exchanges). 
Re Mex. and So. Am. Co., re Aston, 27 Beav. 474, aff'd 18 L. T. 596 (Com- 
munications between brokers and clients not privileged). 
Rosen stock vs. Tormey, 32 Maryland, 169 (Relative to place where securities 

may be purchased). 
Skiff vs. Stoddard, 63 Connecticut, 198 (Relative to the extent to which the 

customer's margin and pledged securities are protected). 
Taussig vs. Hart, 58 N. Y. 425 (A broker cannot buy of himself or sell the 

customer's stock to himself). 
Taylor and Plumer, 3 Maule and Selwyn's Reports, 562 (1815) (Relating 

to the extent to which the customer's margin and pledged securities are 

protected). 
Thompson vs. Meade, 7 Times Law Reports, 698 (A broker cannot buy of 

himself or sell the customer's stock to himself). 
White vs. Drew, 56 How P. R. (N. Y.) 53 Relative to joint adventures in 

stocks). 
Wicks vs. Hatch, 62 N. Y. 535 (Relative to special contracts). 
Wolf vs. Campbell, no Mo. 114 (Relative to usages in the brokerage 

business). 



LEADING MAGAZINE ARTICLES 

Ager, "Causes of Panics" in American Journal of Politics, IV, 233. 
Anderson, "Insurance Investments" in Annals American Academy, XXIV, 

431-45, November, 1904. 
Cleveland, "Classification and Description of Bonds" in Annals American 

Academy, XXX, 208-219, September, 1907. 
Clews, "Speculation in Wall Street" in Cosmopolitan, XXXVII, 404. 
Conant, "Function of the Stock and Produce Exchanges" in Atlantic 

Monthly, XCI, 433-42, April, 1903. 
Conant, "Securities as a Means of Payment" in Annals American Academy, 

XIV, 181-203, September, 1899. 
Conant, "Uses of Speculation" in Forum, XXXI, 698-712, August, 1901. 
Conant, "Wall Street and the Country" in Atlantic Monthly, XCIII, 145-55. 
Conant, "World's Wealth in Negotiable Securities" in Atlantic Monthly, CI, 

97-104, January, 1908. 

(707) 



226 The Annals of the American Academy 

Dill, "Industrials as Investments for Small Capital" in Annals American 

Academy, XV, 109-19, May, 1900. 
Dreher, "Berlin Bourse" in Century Magazine, LXVI, 684-95, September, 

1903. 
Foley, "Bond Salesmanship" in Annals American Academy, XXX, 72-76, 

September, 1907. 
Foley, "Organization and Management of a Bond House." Ibid., 65-71, 

September, 1907. 
Francois, "Paris Bourse" in Journal of Political Economy, VI, 536-44, Sep- 
tember, 1898. 
Friend, "Paris Bourse" in Forum, XXXII, 232-43, October, 1901. 
Hamer, "Life Insurance Investments" in Annals American Academy, XXVI, 

76-88, September, 1905. 
Herrick, "The Panic of 1907 and Some of its Lessons." Ibid., XXXI, 308- 

25, March, 1908. 
Howe, "Panics" in American Journal of Politics, V, 449. 
Huebner, "Distribution of Stockholdings in American Railways" in Annals 

American Academy, XXII, 475-90, November, 1903. 
Hurd, "Real Estate Bonds as an Investment Security." Ibid., XXX, 158-81, 

September, 1907. 
Johnson, "Crisis and Panic of 1907" in Political Science Quarterly, XXIII, 

454-67, September, 1908. 
Keys, "Bond Redemption and Sinking Funds" in Annals American Acad- 
emy, XXX, 21-37, September, 1907. 
Knapp, "Panic of 1893" in American Journal of Politics, IV, 656. 
Kramer, "Securities of Public Service Corporations as Investments" in 

Annals American Academy, XXV, 101-16, January, 1905. 
Lunger, "Investment of Insurance Funds" in Yale Insurance Lectures, Vol. I, 

144-61. 
Macdonald, "Our Present Crisis" in North American Review, CLXXXVII, 

183-92, February, 1908. 
Meyer, "New York Stock Exchange and the Panic of 1907" in Yale Review, 

XVIII, 34-46, May, 1909. 
Mitchell, "Stockholders' Profits from Privileged Subscriptions" in Quarterly 

Journal of Economics, XIX, 231. 
Moffett, "Paris Bourse" in Century Magazine, LXVII, 635-51, March, 1904. 
Mundy, "Railroad Bonds as an Investment Security" in Annals American 

Academy, XXX, 120-43, September, 1907. 
Norman and Jonson, "London Stock Exchange" in Century Magazine, LXVI, 

177-94, June, 1903. 
Noyes, "Financial Panic in the United States" in Forum, XXXIX, 293-313, 

- January, 1908. 
Noyes, "Stock Exchange Clearing Houses" in Political Science Quarterly, 

VIII, 252. 
Noyes, "Stock Exchange Speculation, 1909" in Forum, XLII, 318-32, October, 

1909. 

(708) 



Bibliography 227 

Rollins, "Table of Bond Values — Theory and Use" in Annals American 

Academy, XXX, 41-55, September, 1907. 
Selden, "Trade Cycles and the Effort to Anticipate" in Quarterly Journal of 

Economics, XVI, 293-310, February, 1902. 
Speare, "Foreign Investments of the Nations" in North American Review, 

CXC, 82-92, July, 1909. 
Speare, "Selling American Bonds in Europe" in Annals American Academy, 

XXX, 77-91, September, 1907. 
Spitzer, "Industrial Bonds as an Investment." Ibid., 182-91. 
Squire, "Essential Recitals in the Various Kinds of Bonds." Ibid., 56-64. 
Swanson, "The Crisis of i860 and the First Issue of Clearing House Cer- 
tificates" in Journal of Political Economy, XVI, 65-87; 212-26. 
Terrell, "Protection of Municipal Bonds" in Annals American Academy, 

XXX, 204-07, September, 1907. 
Van Deusen, "Electric Interurban Railway Bonds as Investments." Ibid., 

144-57. 
Weil, "Municipal Bond Issues Explained." Ibid., 197-203. 
Weil, "The Physical Condition of a Municipality Issuing Bonds." Ibid., 

192-96. 
White, "Hughes' Investigation" in Journal of Political Economy, XVII, 

528-40, October, 1909. 
Yates, "Panic Preventions and Cures" in Annals American Academy, XXXI, 

398-412, March, 1908. 



LEADING MANUALS, HANDBOOKS, DICTIONARIES, DIREC- 
TORIES, CONSTITUTIONS OF EXCHANGES, AND TABLES 
OF VALUES, AMERICAN AND FOREIGN 

AMERICAN 

American street railway investments (Annual). New York: Street Railway 

Journal, $5.00. 
R. W. Babson, Bond descriptions (revised weekly). Wellesley Hills, Mass.: 

By the author. Original installation, $25.00; weekly revisions, $5.00 per 

month. 
R. W. Babson, Corporation bond offerings (1908). Wellesley Hills, Mass.: 

By the author, $5.00. 
R. W. Babson, Stock brokers and bond dealers classified. (A directory of 

the 100 largest cities of United States and Canada. Annual.) Wellesley 

Hills, Mass.: By the author, $5.00. 
R. W. Babson, Stock brokers and bond dealers of London (1908). Wellesley 

Hills, Mass. : By the author, $5.00. 

(709) 



228 The Annals of the American Academy 

R. W. Babson, Special bond circulars (1908). Wellesley Hills, Mass.: By 
the author, $10.00. 

Baltimore Stock Exchange, Constitution and By-Laws. 

Boston Copper Book (Annual). New York: Moody Corporation, $1.50. 

Bradshaw's Railway Shareholders' Manual (Annual). Wellesley Hills, Mass. : 
R. W. Babson, $6.00. 

H. K. Brooks, Foreign exchange figuring book. New York : Moody Corpora- 
tion, $5.00. 

Castelli, Stock exchange tables for calculation of simple interest and com- 
missions. Wellesley Hills, Mass. : R. W. Babson, 50 cents. 

Chicago Stock Exchange, Constitution and By-Laws. 

W. G. Cordingley, Dictionary of stock exchange terms. Wellesley Hills, 
Mass.: R. W. Babson, $1.50. 

Joseph Deghnee, Table of Bond Values (1908). New York: George W. 
Dougherty. 

Directory of Directors in the City of New York. New York : Audit Com- 
pany, $5.00. 

A. G. Farr and J. Deghnee, comps., Bond tables giving present value of bonds 
bearing interest at rate of 7 per cent, 6 per cent, etc. (1906). Chicago: 
N. W. Harris & Co, $2.00. 

Financial Calendar (Annual). New York: Financial Calendar Company, 

Financial Diary, 1908 (Diary of past financial events from the beginning of 
financial history in United States to present time ; diary of future finan- 
cial events for the year 1908). New York: Financial Calendar Company 
$3-50. 

Financial Red Book of America, 1905, 1906, 1907. Jersey City, N. J.: Finan- 
cial Red Book Company, each $10.00. 

Gibson's Manual. New York: Gibson Publishing Company, $5.00. 

Gilbert, Interest and contango tables. Wellesley Hills, Mass. : R. W. Babson, 
$5.00. 

Gladding, Tables for calculating American stocks at various rates of ex- 
change. Wellesley Hills, Mass. : R. W. Babson. 

Handbook for investors (Annual). Wellesley Hills, Mass.: R. W. Babson, 
$1.50. 

C. G. Harraman, American investments classified. Wellesley Hills, Mass. : 
R. W. Babson. 

Highest and lowest prices and dividends paid during the past six years 
(issued annually). Wellesley Hills, Mass.: R. W. Babson, $1.50. 

Insurance Yearbook (reference guide to insurance stocks and dividends 
thereon. Annual). New York: The Spectator Company. 

Investors' and trustees' register. Wellesley Hills, Mass. : R. W. Babson, $3.50. 

Investors' monthly manual (English). Wellesley Hills, Mass.: R. W. Babson. 

Investors' Year Book (Annual). Wellesley Hills, Mass.: R. W. Babson, 
50 cents. 

Jones stock tables. Wellesley Hills, Mass. : R. W. Babson, $17.50. 

(7IO) 



Bibliography 229 

Arthur S. Little, Bond values. New York : Moody Corporation, $2.75. 

Manual of statistics (stock exchange handbook, published annually; 30th 
annual issue, 1908). New York: Manual of Statistics Company, $5.00. 

Moody's bond interest tables. New York: Moody Corporation, 50 cents. 

Moody's classified investments. Ibid., $10.00. 

Moody's coupon and dividend register (Annual). Ibid., $5.00. 

John Moody (Ed.), Manual of railroad and corporation securities (Published 
annually). New York: By the author, $10.00. 

Moody, Manual of Industrial and miscellaneous securities. New York: O. C. 
Lewis, $5.00. 

Floyd W. Mundy, Earning power of railroads (Annual). New York: Moody 
Corporation, $2.00. (Also R. W. Babson, Wellesley Hills, Mass.). 

S. A. Nelson, Bond buyer's dictionary (1907). New York: By the author 
(3 vols.), vol. I, $2.00. 

New York Stock Exchange, Constitution and By-Laws. 

Philadelphia Stock Exchange, Constitution and By-Laws. 

Poor's Directory of railway officials. Wellesley Hills, Mass. : R. W. Babson. 

Poor's Manual of Railroads (Annual). New York: Poor's Railroad Manual 
Company, $10.00. 

J. W. Robinson, Bond and investment tables. Brookline, Mass.: By the 
author, $5.00. 

Montgomery Rollins, Convertible securities. Boston : By the author, $3.50. 

Montgomery Rollins, Montgomery cipher code. New York: Moody Corpo- 
ration, $2.50. 

Montgomery Rollins, Tables showing the net returns from bonds, stocks and 
other investments having a fixed maturity and paying interest semi- 
annually (15th ed. 1907). Boston: By the author, $3.00. 

Montgomery Rollins, Tables showing the net returns from bonds, stocks, 
and other investments paying interest annually at the rate per annum of 
3, 4, 4 T / 2 , 5, 6, 7 and 8 per cent and maturing in periods from 1 to 50 
years inclusive (1907). Boston: Ibid., $5.00. 

William R. Shanks, Municipal bond sales (Annual). Wellesley Hills, Mass. : 
R. W. Babson. 

Howard Irving Smith, Financial Dictionary (1008). New York: Moody's 
Magazine, $2.00. 

C. E. Sprague, Extended bond tables (1906). New York: Accountancy Pub- 
lishing Company, $10.00. 

C. E. Sprague, Additional extended bond tables (1907). New York: By the 
author, $3.00. 

C. E. Sprague, Amortization : guide to the ready computation of the invest- 
ment value of bonds (1908). New York: Ibid., 50 cents. 

The Standard Statistics Bureau System (Deals with stock only). New 
York, $5.00 per month. 

Horace J. Stevens (comp.), Copper Handbook (Annual). New York: 
Moody Corporation, $5.00. 

Stockbroker's handbook. Wellesley Hills, Mass. : R. W. Babson, 50 cents. 

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230 The Annals of the American Academy 

Stock exchange handbook (Annual). Wellesley Hills, Mass.: R. W. Babson. 

$1.00. 
Stock exchange manual of statistics (25th annual issue, 1903). New York: 

Manual of Statistics Company, $5.00. 
Table of some forms used by stock, cotton and produce brokers, and by 

bankers, in Dos Passos : Stock Brokers and Stock Exchanges, pp. 1067- 

1125. New York: Banks Law Publishing Company. 
H. E. Wallace, Manual of statistics: stock exchange handboooU (1900). New 

York : C. H. Nicoll, $5.00. 
Wall Street Code. New York: Moody Corporation $10.00. 
White and Kemble, Atlas and digest of railway mortgages (Have been 

published for about 30 systems). Wellesley Hills, Mass.: R. W. Babson, 

$10.00 to $15.00 per system. 
J. L. Williams & Son, 1890 manual of investments; facts and figures regard- 
ing Southern investment securities (1890). Richmond, Va. : J. L. Wil- 

laims & Son, $2.00. 
S. H. Wolfe, Investment Directory Insurance Companies (Annual). New 

York: Insurance Press. 



Anglo-American Stock Exchange Tables (For comparing English and Amer- 
ican prices at various rates of exchange). Wellesley Hills, Mass.: R. W. 

Babson, 75 cents. 
R. W. Babson, stock brokers and bond dealers [Published annually (for 

London, Paris, Amsterdam and Berlin)] (1907). Wellesley Hills, 

Mass. : By the author, ea. $5.00. 
W. R. Houston, Annual financial review (Canadian). New York: Moody 

Corporation, $5.00. 
London mining share list. Wellesley Hills, Mass. : R. W. Babson, $10.00. 
London Stock Exchange, Rules and regulations for the conduct of business 

on the London stock exchange, in Dos Passos: Stock Brokers and Stock 

Exchanges, pp. 1131-1220. New York: Banks Law Publishing Company. 
Paris Stock Exchange, Synoptic tables of the three regulations of the stock 

exchange company of Paris, in Dos Passos : Stock Brokers and Stock 

Exchanges, vol. 2, pp. 1226-1331. New York: Banks Law Publishing 

Company. 
John Holt Schooling, British Trade Year Book, 1880-1904. Wellesley Hills, 

Mass. : R. W. Babson, $5.00. 
Thos. Skinner, Stock exchange year book (Annual, English). New York: 

Moody Corporation, $12.50. (Also R.. W. Babson, Wellesley Hills, 

Mass.). 
Stock exchange official intelligence [The leading handbook of the world on 

all securities, American and foreign]. Wellesley Hills, Mass.: R. W. 

Babson, $20.00. 
G. H. Strutfield and H. S. Coutley, Rules and usages of the London stock 

exchange. New York : Moody Corporation, $2.00. 

(712) 



Bibliography 231 

Tokyo Stock Exchange, Constitution. 

United Kingdom Stock and Shareholders' Directory for 1905-1906. Wellesley 
Hills, Mass. : R. W. Babson. 



LEADING JOURNALS AND NEWS SERVICES 

AMERICAN 

Annual Financial Review (semi-annual). Canada. 

Bankers' Magazine (monthly). New York: Bankers' Publishing Company. 

Banker and Tradesman (weekly). Boston: Review and Record Company. 

Boston Commercial (weekly). Boston. 

Boston Herald (news daily). Boston. 

Boston News Bureau (daily). Boston: C. W. Barron. 

Boston Transcript (news daily). Boston. 

Commercial and Financial Chronicle (weekly). New York: William B. Dana 

Company. 
Economist (weekly). Chicago: Economist Publishing Company. 
Electric Railway Journal. New York: McGraw Publishing Company. 
Electric World (weekly). New York: McGraw Publishing Company. 
Engineering and Mining Journal (weekly). New York: Hill Publishing 

Company. 
Finance (weekly). Cleveland, Ohio: Finance Publishing Company. 
Financial World (weekly). New York: Guenther Publishing Company. 
The Financier. New York. 

The Iron Age (weekly). New York: David Williams Company. 
Manufacturers' Record (weekly). Baltimore. 
Moody's Magazine (monthly). New York: A. W. Ferrin. 
Money (weekly). Pittsburgh: Finance Company. 
New York Evening Post (news daily). New York. 
New York Journal of Commerce (news daily). New York. 
New York Mining Age. New York. 
Railway Age Gazette (weekly). New York. 

Street Railway Journal (weekly). New York: McGraw Publishing Company. 
The Ticker (monthly). New York. 
Universal Stock Exchange Market Report (weekly). 
United States Investor (weekly). Boston: Frank P. Bennett & Co. 
Wall Street Journal (daily). New York. 
Wall Street Summary (daily). New York. 

FOREIGN PERIODICALS 

Allgemeine Borsen-Zeitung (weekly). Germany. 
Borsen Revue (weekly). Germany. 
Borsen Statistik (weekly). German v. 

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232 The Annals of the American Academy 

De Financier (Pik) (weekly). Holland. 

The Economist (weekly). London. 

Stock Exchange Gazette (weekly). England. 

Stock Exchange Weekly Official Intelligence. England. 

L'Economiste (weekly). Paris, France. 

Monde Financier (weekly). 

Pour et Le Contre (weekly). 

Semaine Financiere (weekly). 

Statist (a financial trade journal). London. 

Note : Among the various bibliographies prepared by selling agencies 
special mention should be made of the bibliography on financial works pre- 
pared by Mr. Roger W. Babson, Wellesley Hills, Mass. This bibliography 
is especially valuable on account of the references to foreign publications 
and the various manuals, handbooks and directories, 



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BOOK DEPARTMENT 



NOTES 



Alston, L. Modern Constitutions. Pp. viii, 79. Price, 90 cents. New York: 

Longmans, Green & Co., 1909. 
This is a brief analysis of the constitutions of the leading states of the world. 
The short chapters are clear, but the comparisons are in some cases forced. 

Banfield, E. J. The Confessions of a Beachcomber. Pp. xii, 336. Price, 
$4.00. New York: Appleton & Co., 1909. 

Bellom, M. Les Questions Ouvrieres et la Science Actuarielle. Pp. 101. 
Paris : H. Dunod et E. Pinat, 1909. 

von Bohm Bawerk, E. Positive Theorie des Kapitales, dritte auiiage. Pp. 

xxii, 171. Innsbruck: Verlag der Wagner schen Universitats-Buchhand- 

lung, 1909. 
This is the third revision of books one and two of the "Positive Theorie." 
Its departure from the text of former editions is mainly in two places. The 
discussion in the third chapter of Book one on "The Competing Conceptions 
of Capital" has been greatly lengthened owing to the appearance, since the 
publication of the last revision, of a considerable amount of new literature 
on the subject by Clark, Fisher, Tuttle and Fetter. The second change is the 
insertion in book two of a wholly new chapter entitled "An Important 
Parallel Phenomenon to Indirect Capitalistic Production." 

Brand, R. H. The Union of South Africa. Pp. 192. Price, $2.00. New 

York : Oxford University Press, American Branch, 1909. 
South Africa has recently had focussed upon it the attention of students of 
comparative government. The developments which have marked the almost 
unprecedentedly swift disappearance of sectional jealousies have been fol- 
lowed with unusual interest. The appearance of this small volume is for this 
reason especially opportune. Mr. Brand was secretary to the Transvaal 
delegates at the South African National Convention and is therefore in a 
position to speak with authority of the work done. Unfortunately, the pro- 
ceedings of the convention are still covered by the injunction of secrecy, so 
that much of the most interesting material is still unavailable. The analysis 
of the framework of the new government is clear and the historical develop- 
ment leading up to the formation of the responsible government is well done 
though brief. The last three chapters forecast probable future developments. 

Brewer, I. W. Rural Hygiene. Pp. 226. Price, $1.25. Philadelphia: J. B. 

Lippincott Company, 1909. 
The book discusses systematically the problems of rural hygiene. The dwell- 
ings, schools, water facilities, food and diet of the country people are each 

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234 The Annals of the American Academy 

analyzed in turn. The last half of the book is devoted to a discussion of the 
various forms of contagious and infectious disease. While rural problems 
are considered primarily, the ultimate purpose of the book is the shaping of 
a higher, saner form of life in the entire community. 

Brooks, J. G. The Conflict Between Private Monopoly and Good Citizenship. 

Pp. 43. Price, 50 cents. Boston: Houghton, Mifflin Company, 1909. 
This little volume is a plain, sane and incisive analysis of the effect of private 
monopoly on good citizenship as evidenced in America. The author believes 
that "the people are at last convinced that these monopolies are more powerful 
than government." He contends that "about the ordered and constructive 
purpose to curb the abuses of our ill-regulated private monopolies, there 
should be no disagreement among sane and disinterested men." The book 
is radical in that it goes to the root of things and leaves no stone unturned. 
It is conservative in that it maintains that our present problem is regulation. 
We must first prove this a failure as a remedy before other measures are 
taken. Withal, it is optimistic as to the outcome. 

Buckley, J. M. The Wrong and Peril of Woman Suffrage. Pp. 128. New 

York: F. H. Revell Company, 1909. 
Dr. Buckley deals primarily with the probable results of woman suffrage, as 
he sees them, rather than with the fundamental reasons for or against 
suffrage. Historically he confines himself to the discussion of unsuccessful 
attempts made to attain it in France, England and the United States, Notable 
opinions are next quoted on the subject, and then the arguments against 
equal suffrage are presented. For the woman who limits herself to her so- 
called natural sphere, Dr. Buckley insists that no legal protection is necessary. 
She can protect herself and society sufficiently by her femininity, the most 
prominent attribute of which is her sweetness, far better than by assuming 
the manly qualities of "strength, power and majesty." The power of decision 
upon what is "natural" for men and women is apparently confined to men 
such as the writer. It is difficult to obtain a clear outline of the trend of 
thought of the writer either from the table of contents or the book itself, but 
the fundamental idea seems to be that suffrage would be a "reform against 
nature" as nature is conceived by Dr. Buckley, and would, therefore, bring 
"irreparable calamity" to the state that instituted it. 

Buschkiel, R. Die Rentabilitdt der S'dchsischen Staatseisenbahnen. Pp. 81. 
Stuggart: J. C. Cotta, 1909. 

Cambridge Modern History. Vol. VI, The Eighteenth Century. Pp. xxxiii, 
1019. Price, $4.00. New York : Macmillan Company, 1909. 

Cameron, Agnes D. The New North. Pp. xv, 398. Price, $3.00. New York: 
D. Appleton & Co., 1910. 

Casson, H. N. Cyrus Hall McCormick, His Life and Work. Pp. xi, 264. 
Price, $1.60. Chicago: A. C. McClurg & Co., 1909. 

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Book Department 235 

Coleman, Q. W. Searchlights. Pp. vi, 102. Price, 75 cents. Boston, Mass.: 

The Golden Rule Company, 1910. 
This volume comprises a number of editorials written by the author for 
"The Christian Endeavor World." These articles represent the viewpoint of 
a business man upon some of the most vital religious and social questions 
of the day. 

Conyngton, Mary, How to Help. Pp. x, 367. Price, $1.50. New York: The 

Macmillan Company, 1909. 
In the revised edition of her book, "How to Help," Miss Conyngton again 
offers us a valuable handbook for assistance in the practice of charity. While 
containing much that may help the professional, the book is primarily intended 
as "a practical, concise manual for the use of those men and women who, 
having no professional knowledge of charitable work, yet feel responsible for 
the right treatment of the appeals for help which are certain to come to them." 

Out of her large experience, the writer brings useful knowledge and a 
helpful attitude. The new edition is in general unaltered, though some 
improvement might well have been made in the order and proportion of some 
of the chapters. The latest opinions have, however, been given, and in 
revising emphasis has been laid on the importance of preventive work and 
the need of social justice rather than philanthropy or charity. 

Dawbarn, C. Y. C. Liberty and Progress. Pp. xvi, 339. Price, $3.00. New 
York : Longmans, Green & Co., 1909. 

Devine, E. T. Social Forces. Pp. 226. Price, $1.25. New York: Charities 

Publication Committee, 1909. 
This little book contains twenty-five of Professor Devine's editorials out of 
the many which he has written for "The Survey." The selection which has 
been made is a most happy one, the editorials selected discussing subjects 
of permanent interest. The essays have such decided merit that there is 
good excuse for embodying them in a permanent volume. No writer in 
applied sociology to-day expresses views that are more sane and more care- 
fully based upon scientific fact than Professor Devine. While Professor 
Devine does not call himself a sociologist, he has an insistent sociological 
viewpoint, that is, he views these problems from the standpoint of the 
organization, development and functioning of society as a whole. Many of 
his essays, like the one for example on "Religion and Progress," even contain 
suggestions for sociological theory which the social theorist should by no 
means neglect. The book is felicitous in style and vigorous in thought. 

Drysdale, C. R. The Population Question. Pp. 94. Price, 6d. London: G. 
Standring. 

Eliot, C. W. The Religion of the Future. Pp. 62. Price, 50 cents. Boston: 

The Ball Publishing Company, 1909. 
This much discussed lecture attempts to formulate a religion based on "a 
humane and worthy idea of God, thoroughly consistent with the nineteenth 
century revelations concerning man and nature." These revelations clearly 

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236 The Annals of the American Academy 

involve certain eliminations from the older creeds. Many will question, 
however, whether all of Dr. Eliot's eliminations are thus necessitated. Plato 
and Paul, modernized and knowing all that he knows, would doubtless modify 
their doctrines, but would still retain as a basis for doctrine a richer 
religious experience than the ex-president of Harvard discloses. Using the 
convenient categories of Professor William James, Dr. Eliot is one of the 
"once-born" only. Professor James finds the experience of the "twice-born" 
type more interesting and profound. From this standpoint the lecturer's 
treatment of some of the prime functions of religion, e. g., "communion with 
God" and consolation in sorrow, would seem singularly lacking in these 
qualities. And it is hardly scientific to assume that some of the experiences 
of the "twice-born" may not be among the significant insights into the 
nature of reality. 

Elson, H. W. A Child's Guide to American History. Pp. v, 364. Price, 

$1.25. New York : Baker & Taylor Company, 1909. 
The title of this volume is a misnomer. It is not a "guide" in the accepted 
use of that word, but rather an anecdotal history for children. The author 
has not attempted to present a connected narrative, but to relate incidents 
and adventures which he trusts will prove so attractive to children as to 
stimulate more extensive reading of the history of our country. The title 
of one of the chapters, "Odds and Ends," would apply equally well to the 
entire work, as no particular principle seems to have been followed in the 
selection of the anecdotes other than their intrinsic interest. Most of the 
stories are well authenticated, but a few have been admitted that are based 
chiefly on tradition. 

There are sixteen full-page illustrations, several being copies of paintings 
that are of little historical value, being the creation of the imagination of the 
aritist, as, for example, "The Landing of the Pilgrims." Fortunately, how- 
ever, others are from contemporary prints or photographs, the last being a 
topographical map of the Panama Canal. 

Emerson, H. Efficiency as a Basis for Operation and Wages. Pp. 171. 

Price, $2.00. New York: The Engineering Magazine, 1909. 
Appearing first as a series of articles in "The Engineering Magazine" during 
1908 and 1909, the various chapters of this work are now presented in a 
more permanent form, revised, amplified and in great part rewritten. The 
author has not — most excellent omen — wasted his own or his reader's time 
in the usual tedious historical and sociological preliminaries, but comes 
directly to his subject in two short, crisp chapters dealing with "Typical" 
and "National Efficiencies," and proceeds almost immediately to set forth his 
theories and proposals of "Line and Staff Organization," "Standards," and 
"Their Realization in Practice." With these two weapons this modern 
industrialist eliminates wastes, increases production, raises wages and reduces 
productive cost. One may occasionally disagree with him as to his methods, — 
never as to his fundamentals. He proves his case against our general indus- 
trial inefficiency to the hilt. And the refreshing sanity of those industrial 

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Book Department 237 

reconstructions which he proposes, and which he describes as having actually 
been carried out in large industrial institutions, will appeal immediately to 
the thoughtful engineer. The style is brisk, concise, terse, and the work will 
take a high place in the specialized literature of the engineering world. 

Enock, C. R. Peru. Pp. xxxii, 320. New York: Charles Scribner's Sons. 
The industry of Mr. Enock seems to have no limit. In rapid succession he 
has published three very useful books on Latin-America. The present work, 
dealing with Peru, is probably the most useful of the series. The first nine 
chapters are devoted to a historical survey which, while necessarily brief, 
shows that the author has more than a superficial knowledge of Peruvian 
history. The best portions of the work, however (chapters 11-14 inclusive), 
deal with the social system. In this portion of the work the author is dealing 
with new material, and has made a real contribution to the subject. The 
study of that peculiar type of Peruvian known as the "cholo" is particularly 
well done, and indicates that he has been able to appreciate more clearly than 
any previous writer the position of this interesting class of Peruvian society. 

In the final chapters of the work (chapters 15-21 inclusive) the author 
deals with economic and commercial conditions, and also sets forth with 
great clearness the financial history of the country. The final chapter con- 
tains an excellent series of travel notes, which cannot help but be of service 
to those intending to visit Peru. 

To the book is attached a brief bibliography and an excellent map of 
the country. It is by all odds the most satisfactory work on Peru that has 
as yet appeared and will be welcomed by every student of Latin-American 
affairs. 

Fanning, C. E. (compiled by). Selected Articles on the Election of United 
States Senators. Pp. 118. Price, $1.00. Minneapolis: The H. W. 
Wilson Company, 1909. 
The chief sources of information placed at the reader's disposal by this book 
are contained in the "Arena," the ''Forum" and the "Congressional Record." 
Well selected series of reprints from these sources make the chief argument 
on both sides easily available. There is in addition a fairly exhaustive 
bibliography, which points the way to further investigation. The references 
showing how a change is being introduced in the way the constitution actually 
works are especially valuable. Like the other volumes of the series, this book 
will be found of great value to debaters because of the access it gives to the 
controversial literature of the subject. 

Flick, A. C. The Rise of the Medieval Church. Pp. xiii, 623. Price, $3.50. 

New York : G. P. Putnam's Son, 1909. 
Professor Flick traces the history of the Church from the time of the apostles 
to the thirteenth century — the time when the Papacy was at the height of its 
power. This covers the period when the Roman Church was developing 
its present elaborate framework. The working out of tendencies shown even 
in the early history of Catholic doctrine is well done. When the book closes 

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■•• 



238 The Annals of the American Academy 

the dramatic services, discipline, doctrine, fixed and universal ritual and 
liturgy have taken almost the form in which we know them to-day. 

The object of the volume is evidently not to add another to the list of 
works that are valuable only for use in theological seminaries, but to present 
church history as a cultural study adaptable for college classes. The institu- 
tion as a part of civilization is traced rather than the growth of dogma as 
a system of thought divorced from every-day life. Especial emphasis is 
placed upon the marvelous formative influence which the Church has had 
upon the character of our western civilization. To accomplish this many of 
the interesting collateral developments in church life have been omitted so as 
to bring out the continuity and unity of the outline. 

There is evidence throughout the book of extended study. Most of the 
work in preparation was done in Europe. The greater number of references, 
however, are to sources in English — a plan justified by the object of the 
book — to make the material of use not primarily to the research student, but 
to undergraduate college classes. 

Fuld, L. H. Police Administration. Pp. xix, 551. Price, $3.00. New York: 

G. P. Putnam's Sons, 1909. 
Critical studies of this character are too conspicuous by their absence. The 
detailed research necessary for such a work is still only too often discounted 
as "academic." Mr. Fuld has given an excellent exposition of the duties, 
powers, functions and problems of the modern police system. Familiarity 
with the police system of New York City makes the discussion one which 
has the much-to-be-desired practical character. 

It is a fashion to villify the police. To the average man they often 
represent a corrupting influence in the community, social life and poli- 
tics. Mr. Fuld insists, as has ex-Commissioner Bingham before him, 
that the majority of both officers and men are honest, self-respecting and 
efficient. The cause of the abuses which attract so much public attention 
lies partly in our system of selecting police commissoners — who, as a rule, 
are not interested in giving good service, partly in our legislative bodies, 
both state and local, which pass a host of measures unenforceable or dis- 
approved by the local population. Professional politicians, who favor lax 
administration of the law, add another undesirable element. The result is 
that whether the laws are enforced or unenforced the police are in a false 
position with the community. 

The book opens with a brief review of police systems ancient and 
modern. There follows a review of methods of organization and selection 
covering eighty pages ; the duties of policemen, their discipline and equip- 
ment, one hundred and thirty pages ; the special questions that complicate 
the police problem, especially in America, one hundred pages, and finally a 
detailed exposition of the New York organization, eighty pages. 

Throughout the American organization of the police force is subjected 
to severe criticism. "The United States is the only country in the world 
which has adopted the principle of uncontrolled municipal police manage- 
ment." The establishment of a state police in certain cities is also an 

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Book Department 239 

expedient wrong in principle. Nevertheless, Mr. Fuld is not ready to 
advocate a state police system for both cities and rural districts — he fears 
the influence of corrupt state politics. He thinks that state inspection of 
urban police might bring an improvement. It is curious that no discussion of 
the experience of Pennsylvania with a state constabulary supplementing the 
local police is given. 

Galton, Francis. Memoirs of My Life. Pp. viii, 339. Price, $3.50. New 

York: E. P. Dutton & Co., 1909. 
It is interesting to secure at first-hand a story of the life and development 
of "the Father of Eugenics." In this autobiography Mr. Galton has brought 
out the phase of his life which would be of greatest interest to a student of 
hereditary and environmental influences. Starting with his parents and his 
childhood, he describes his school years, his studies and attitude toward 
them, his travels, his interest in natural history and his early attempts to 
develop processes which would determine the extent and character of heredity. 
One of the most interesting sections of the book is that dealing at length 
with the influence of the British Association on the development of scientific 
study in Great Britain. 

The last three chapters of the book are devoted to a discussion of human 
faculty, heredity and race improvement, special emphasis being laid upon 
the changes which led Mr. Galton to take special interest in the development 
of the race. In the last chapter the author deals with the origin and present 
importance of eugenics, holding that "a democracy cannot endure unless it 
be composed of able citizens; therefore it must in self-defence withstand the 
free introduction of degenerate stock." The autobiography does not cast 
any further light upon the problem of eugenics, nor does it introduce any 
new elements which were not already published, but it does combine in a 
charming way the life and works of the author. 

George, W. R. The Junior Republic. Pp. xii, 327. Price, $1.50. New York: 

D. Appleton Company, 1909. 
The story of the birth and development of the George Junior Republic is 
here detailed in a most fascinating way by the founder of the republic him- 
self. The idea developed from the application of various methods of dealing 
effectively with a group of unruly slum children who annually enjoyed the 
benefits of a summer outing at Freeville, N. Y. Mr. George concluded that 
the outcome of this work was unfavorable and lacked constructive results. 
He gradually applied a work test for benefits received by the children and 
authorized a system of limited self-government. The republic was at first 
established as a disciplinary agency employed only during the outing season, 
but was soon made permanent and operated throughout the year. 

The problems of the new republic were numerous. A complete system of 
government was established which was based upon the laws of the State of 
New York and such local ordinances as the citizens might themselves enact. 
Accordingly laws were made, courts established, criminals convicted and 
imprisoned, and business of almost every description transacted precisely as 

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240 The Annals of the American Academy 

in the outside world. Both boys and girls were admitted, and the latter, after 
a struggle, finally obtained the full rights of citizenship. The republic has 
become a village composed of children sent there by the courts, brought by 
their parents or entering voluntarily. The method of organization is unique. 
Industrial training is secured through the carrying on of bona fide industrial 
enterprises. 

The effects upon the great majority of children have been so stimu- 
lating and uplifting that the author hopes republics will be established in 
every state of the Union. Here should be admitted first those children most 
in need of training, but eventually all boys and girls for a limited time in 
order to give them some training in citizenship and self-government. 

Grenfell, W. T., and others. Labrador — the Country and the People. Pp. xii, 
497. Price, $2.25. New York: Macmillan Company, 1909. 

Hillier, A. P. The Commonweal. Pp. xii, 162. New York: Longmans, 

Green & Co., 1909. 
The author, an Englishman, maintains that "the industries of England were 
born, nursed and developed to a position supreme above those of all other 
nations under a system of deliberation and systematic protection." He asserts 
that England must now once again return to at least a moderate degree of 
protection. This he bases on the fact that during the greater portion of the 
second half of the British free trade period there "has been a continuous and 
large rise in our imports of manufactured goods and a stagnation or an 
actual fall in our exports of manufactured goods." 

The abandonment of England's policy of free trade, which he aptly char- 
acterizes as a system of free imports, is urged for two reasons : First, because 
protection is necessary "to eliminate unfair competition, to give more security 
to capital invested in British industries and to increase the demand for labor," 
and, secondly, because this is an age of great federations, and he believes 
that a fiscal policy looking toward freer trade relations within the British 
Empire, as opposed to the non-British world, would be a great federal 
instrument. He recognizes the fiscal difficulty for the present in having 
absolute free trade in the British Empire, such as exists throughout the 
United States and Germany, but he feels that an extension of the principle 
of preferential tariffs within the empire will be a step in the right direction 
and the "best instrument at our disposal to-day" to bring about the desired 
end of a federated British Empire. Such a policy will make it necessary for 
England in her turn to guarantee to the colonies, preferential advantages in 
her home market. 

The author writes in a clear and convincing style. He belongs rather 
to the so-called historical school of economists than to the English classical 
school. He has made an appreciative study of both German and American 
fiscal systems. Of the latter he says, Hamilton's policy of protection has been 
"vindicated by a century of the most remarkable and enormous material and 
economic development that the world has ever seen." 

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Book Department 241 

Holland, T. E. Letters to "The Times" Upon War and Neutrality, 1881 to 
1909. Pp. xi, 166. Price, $1.75. New York: Longmans, Green & Co., 
1909. 
The letters reprinted in this collection are of great interest to the student 
of international law. They deal with practically every phase of international 
law relating to war, and as they, in every case, discuss a concrete situation 
or a positive suggestion for action, there is about them a definiteness and 
clearness that could not be found in any general treatise. The book is, there- 
fore, admirably adapted to be used as a sort of case-book as an accompani- 
ment to the reading of a more continuous treatment of the subject. Many 
of the letters set forth principles of international law with greater clarity 
than could be found anywhere else in legal literature. Among the interesting 
subjects discussed are such as the following: Pacific blockades, the Venez- 
uelan controversy, the United States naval war code, the Suez Canal, naval 
bombardments, coal for the Russian fleet, etc. Any reader who desires to 
inform himself about the present status of the discussions of international 
law relating to warfare will find this little volume the readiest means toward 
accomplishing his purpose. 

Hutchinson, Woods. Preventable Diseases. Pp. vi, 442. Price, $1.50. Bos- 
ton : Houghton, Mifflin Company, 1909. 
This exceedingly useful volume brings again to our attention the modern 
triumphs of medical science and the growing willingness on the part of the 
medical profession to place in the hands of an ever larger group of readers 
a fund of scientific knowledge, expressed in simple and interesting terms. 
This knowledge is doing much to prevent and to cure disease. The distin- 
guishing characteristic of this book, perhaps, is the novel and interesting 
manner in which the author puts us on familiar terms with diseases about 
which we have known little, and which in consequence we have dreaded 
much. 

Dr. Hutchinson, in his chapter "The Body Republic," explains the 
modern cellular theory of disease. Its central idea is "that every disturb- 
ance to which the body is liable can be ultimately traced to some disturbance 
or disease of the vital activities of the individual cells of which it is made 
up." The optimism of the writer comes out strongly in the second chapter, 
when he discusses the natural inheritance of vigor and healthfulness. We 
hear much of hereditary powers of recovery, and yet the author asserts "that 
heredity is at least ten times as potent and as frequently concerned in the 
transmission and securing of health and vigor as of disease and weakness. 
These assertions of the first two chapters, the remainder of the book goes 
far to make clear from a concrete study of specific diseases. 

Jowitt, Lettice. The British Isles. Pp. xix, 309. Price, 75 cents. London : 

A. & C. Black, 1909. 
This is a collection of abstracts and excerpts from the work of many authors 
who have written about one phase or another of British geography. In 
general the selections are short, largely descriptive of scenery or sections 

(723) 



242 The Annals of the American Academy 

of special interest and representative of the best that has been written on 
the subject. The original reference is given in every case and a valuable 
bibliography is included. Taken as a whole the selections are well chosen 
and make a very interesting book, which tells much about the British Isles 
not to be found within the covers of any other volume. 

Jurgensohn, Arved. Weltporto-Reform. Pp. 317. Berlin: Liebheit & Thie- 

sen, 1910. 
The author is the secretary of the Commercial Treaties Union and advocates 
a world-wide penny postage on the basis of the penny postage lately estab- 
lished throughout the British Empire and between Great Britain and the 
United States. The immediate object which he urges is the application of the 
domestic rate to foreign-bound letters in each country, but he further proceeds 
to show the need of uniformity and simplicity of charges. It is with him, 
however, not merely cheapness, but rather "that in the future both domestic 
and foreign territory shall be postally the same ; that the entire world postal 
area shall become a domestic postal territory; that one schedule of charges 
may embrace the whole globe." 

The author introduces his book with an account of the life of Rowland 
Hill, the initiator of the plan of national penny postage which was intro- 
duced in England on January 10, 1840. In a subsequent chapter he discloses 
a very interesting condition in China, which has a postal union of its own 
with most other nations, and in many cases much more favorable than the 
Universal Postal Union, so that the author calls China "The Most Favored 
Nation." In the tenth chapter he considers the "ways to the goal" of world 
penny postage. First the domestic rate must be applied in each country to 
foreign mail upon an average normal basis of approximately one penny for 
a unit weight. This leads to the discussion of a world postage stamp and a 
world coinage, upon a universal system. The book as a whole is thus a 
specialized treatise, but is of real and general interest to all students of 
public and international economics. 

Langheld, W. Zwanzig Jahre in deutschen Kolonien. Pp. xii, 431. Berlin: 

W. Weicher, 1909. 
Africa is a land of adventure par excellence. Major Langheld shows that 
it was also for him a land of service. To him his government and the 
natives both owe much. During his eleven years' service in German East 
Africa, 1889- 1900, he helped to strengthen the hold of Germany upon that 
vast district and he made himself beloved by the natives through his skill 
as a physician, his fairness as a judge and his skill as a diplomatist in 
binding the natives to his country by treaties. He was active also in 
minimizing the inter-tribal raids which are the curse of the Central African 
district. The student of colonial affairs will find the story of the formative 
period in the history of the colony as portrayed by the author one not of 
less interest than the careers of Goldie, MacKinnon and Rhodes. There is 
at the same time a wealth of experience in big game hunting, exploration 
and native uprisings which appeal to the heroic. The latter half of the work, 

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Book Department 243 

covering the period 1900-8, deals with the author's service in Kamerun. The 
life led there is less primitive, but the description of the changes that are 
being wrought in the colony will do much to modify the opinions of those 
who are pessimistic as to the possibilities of the African colonies. 

Latimer, Caroline W. The Girl and Woman. Pp. xviii, 330. Price, $2.00. 

New York: D. Appleton & Co., 1909. 
The author's purpose has been to condense in popularized form the general 
material regarding the adolescence of girls, compiled by G. Stanley Hall in 
his "Adolescence." The product is noteworthy, for the author has presented 
in scientific yet popularized language a group of well-related facts concerning 
the physical, moral and mental care required by the growing girl. Particular 
note should be made of the chapter on Sex Education, which, while rather 
conservative, presents nevertheless an excellent statement of this little dis- 
cussed and less understood subject. The material in this book deserves a 
place in the knowledge of every thoughtful child trainer. 

Lea, H. The Valor of Ignorance. Pp. xvii, 343. Price, $1.80. New York: 

Harper & Brothers, 1909. 
Unless radical changes are taken in our national policy of defense Germany 
and Japan will hold New York and San Francisco. This is in brief Mr. 
Lea's message supported by a wealth of hyperbole and allusions ranging from 
Psammeticus to the Mikado. 

"In six cycles of decadence China has fallen into such sick corruption 
and internal desolation . . that the still hour has come when this ancientest 
kingdom shall make its solemn salutation to mankind indifferent in the noisy 
buzz of his (sic) diurnal night." We are in danger of the same fate. Japan 
has "disemboweled the two vainest and vastest empires on earth, causing the 
world to whisper in old and stale wonder." Our turn is next, and the author 
has given a series of charts showing how Luzon, Hawaii, Alaska and the 
coasts states will be snatched from us. Only more remarkable than the 
author's seriousness is the fact that a former lieutenant-general of the United 
States Army declares he does "not know of any work in military literature 
published in the United States more deserving . . attention . . than 
this." 

Levy, H. Monopole, Kartelle, und Trusts. Pp. xiv, 322. Jena: G. Fischer, 

1909. 
The purpose of this book is to supply the need of a more complete discussion 
of capitalistic organization and trust formation in Great Britain. The author 
hopes also to have furnished the incentive for monographic studies of par- 
ticular trusts. 

The book consists of three parts, dealing respectively with monopoly in 
the pre-capitalistic stage, the early combinations of the competitive era, and 
organization of large-scale industry on monopolistic principles. Special 
emphasis is placed on the last subject, the others simply receiving a short 
historical treatment. After discussing the transition period, the author points 
out that trust formation in England made but little advance before 1900. 

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244 The Annals of the American Academy 

The development of sixteen of the most important trusts is then sketched. 
The last two chapters deal with problems of trust organization and of 
monopoly, and include a brief discussion of the general effects of the move- 
ment. Among the most significant results are the control of prices by strong 
monopolies, an advance in the prices of trust-made goods, and overcapitaliza- 
tion. Although principally a discussion of British monopolies, the book 
throws much light upon the nature of our own trust problem. 

Lincoln, J. T. The City of the Dinner-Pail Pp. 186. Price, $1.25. Boston: 

Houghton, Mifflin Company, 1909. 
The author here contrasts conditions in Fall River, a "city of the dinner- 
pail," and Newport, a "city of luxury." He describes the characteristics of 
the industrial town, the busy population, the constant activity; discusses the 
value of the machine and its creative efficiency ; points out the necessity 
from the standpoint of the worker of developing trade unions, and indicates 
the relation of the individual worker to the industrial system. The descrip- 
tion of Newport is confined to a brief discussion of the luxury and grandeur 
of its social life. The work is intensely human. Its descriptions are balanced 
and sane, and while not scientific, will nevertheless prove of considerable 
interest to such of the public as are concerned with the questions of work 
and luxury. 

Lobingier, C. S. The People's Law, or Popular Participation in Law Making. 
Pp. xxi, 429. Price, $4.00. New York: Macmillan Company, 1909. 

Lyman, W. D. The Columbia River, Pp. xx, 409. Price, $3.50. New York: 

G. P. Putnam's Sons, 1909. 
This superbly illustrated volume is a most creditable addition to the "Amer- 
ican Waterways" series. The subject lends itself readily to the photographer's 
art, since the Columbia is by many regarded as the most beautiful scenic 
river on the continent. Certainly the author, in his selection of illustrations, 
has in no way detracted from its fame in that respect. 

The book is both descriptive and historical : descriptive of the country 
through which the river flows, the stream itself, and the wonderful scenery, 
from the grandeur of the British Columbia mountains to the enchanting 
solitudes of Lake Chelan, and the ever beautiful Multnomah and Bridal Veil 
Falls; historical, in that it chronicles the leading events in the discovery and 
exploration of the river, the struggle for its possession, and the recent 
developments of industry and commerce along the course of the Columbia. 
In this historical part, which makes up most of the first two-thirds of the 
volume, the author has happily eliminated much of the tedious detail common 
to historical research, and as a result has produced, with accuracy and clear- 
ness, a readable, general account which anyone may enjoy. So skilfully has 
this story been woven that one part cannot be said to be more interesting 
than another ; even the romance of the fur-trading days and of pioneer times 
cannot surpass the romance of the present, in the coming of the miner, the 
farmer and the relations to world's commerce, as here portrayed. 

The last third of the book deals with the river itself and its scenic 

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Book Department 245 

wonders, these aspects being told in the form of a description of a journey 
down the river from the headwaters in the Canadian Rockies to the ocean. 
It is a description such as to arouse the envy of anyone who has not seen 
the country for himself; it is a masterful portrayal of a wonderul region. 

Maunier, R. L'Origine et la Fonction Economique des Villes. Pp. 320. 
Paris : V. Giard & E. Briere, 1910. 

Mead, Edwin D. (Ed.). The Great Design of Henry IV. Pp. xxi, 91. 

Price, 50 cents. Boston : Ginn & Co., 1909. 
This English translation of the "Great Design" of the Huguenot prince, who 
in 1589 became king of France, and for the sake of the peace of his subjects 
became a Catholic in 1593, declaring that "Paris was well worth a mass," 
is published for the International School of Peace. It is very fittingly "the 
first of several volumes devoted to the classics of the peace movement which 
are to be added to the International Library. Emeric Cruce's "Nouveau 
Cynee," the first work to propose international arbitration, is announced for 
early publication, to be followed by Kant's "Eternal Peace." 

Besides the historical introduction by Mr. Mead, the appendix contains 
the papers by Edward Everett Hale on "The United States of Europe," and 
historical passages from Sully's Memoirs, in which the history of the "Great 
Design" is set forth. The text of the "Great Design" is found in Sully, and 
the present translation seems to be all that could be desired. 

Molesworth, G. Economic and Fiscal Facts and Fallacies. Pp. xii, 292. 

Price, $1.50. New York : Longmans, Green & Co., 1910. 
This volume is a plea for the abandonment of England's present policy of 
free trade. To strengthen his case the author contrasts the widely divergent 
ideas held by economists and statesmen on commercial and fiscal questions, 
and exposes the fallacies of the modern free trade program. An exhaustive 
compilation of facts bearing on the economic conditions of several of the 
leading nations of the world is made, and contrasts are drawn between the 
results obtained under the two fiscal policies — those of free trade and pro- 
tection. Comparisons of tariff figures, consular reports, rates of wages, 
rentals and prices of commodities are freely used to illustrate the main 
contention, that the policy of moderate protection has resulted in a corre- 
sponding increase in commercial values and industry, while at the same time 
it has relieved the weight of domestic taxation by throwing the burden upon 
the foreigner. 

Montgomery, D. H. Leading Facts of American History. Pp. 512. Price, 
$1.00. Boston: Ginn & Co., 1910. 

Morawetz, V. Banking and Currency Problems in the United States. Pp. 

119. Price, $1.00. New York: North American Review Publishing 

Company, 1909. 
The author feels that "the main problem of the National Monetary Com- 
mission is to devise an adequate means of regulating and of protecting the 
general credit situation, so as to avoid sudden and wide fluctuations in the 

(727) 



246 The Annals of the American Academy 

amount of credit available for the transaction of the business of the country." 
To accomplish this, he contends that central regulation is necessary, but that 
a central bank, such as solves the problem in Europe, is not practicable in 
the United States, as "the people could not be convinced that it would be 
desirable, or that it would be safe to give to any man or to any set of men 
the power to control the vast resources of such a bank, and to dominate all the 
banks and business interests of the country. 

A plan of central control is set forth which obviates this difficulty and 
at the same time accomplishes the desired end. "Authorize the national 
banks to issue notes upon their joint credit and to control the uncovered 
amount of these notes by the joint action of the Secretary of the Treasury 
and of the managing board or committee elected by the banks." 

"Under certain specified conditions, this association would then control 
the issue of notes, each bank in the association being permitted to take out 
and issue notes up to an amount not exceeding its capital. Redemptions 
would be effected by the use of a fund of twenty per cent of the notes issued, 
this to be deposited with the central association, which should also have the 
power to call for a greater deposit or redemption fund if necessary. The 
fund would be administered under the supervision of the Comptroller of the 
Currency, and would be used through a system of branch redemption agencies 
in the principal cities of the country." 

The style of the book is popular, few technical terms being used not 
already familiar to the lay reader. The pages of the book are amply para- 
graphed and indexed, thereby aiding the reader at a glance to follow the 
general scheme of treatment of the subject. 

Muller, E. Die Rentabilitdt der Grobh Badischen Staatseisenbahnen. Pp. 
viii, 69. Stuggart: J. G. Cotta, 1909. 

Myers, G. History of the Great American Fortunes. Pp. vi, 296. Price, 

$1.50. Chicago: Charles H. Kerr & Co., 1910. 
In this, the first published volume of a three volume work, the author 
presents considerable new and original material descriptive of economic 
conditions which existed in colonial times and which made for the accumu- 
lation of the wealth of the landgraves, traders and shippers of those early 
days. Part II, by far the greater share of the book, is given over to a very 
detailed exposition of the growth and present status of the great land 
fortunes of the United States. In this connection he writes at length of the 
Astor and Marshall Field estates. As in other works by the same author, 
the style is fearless and decidedly frank, and although nothing either good 
or bad is omitted from the discussion, the volume is, by no means, muck- 
raking in character. References to sources of information, while frequent, 
are not as full or as numerous as is desirable in a work of this sort. 

New York Society for the Prevention of Cruelty to Children. Thirty-fifth 

Annual Report. Pp. 115. 
Complaints numbering 252,062 involving the custody of 740,245 children were 
received by the New York Society for the Prevention of Cruelty to Children 

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Book Department 247 

during the thirty-five years of its existence according to its annual report 
for 1909, which has just been issued. During the past year 15,499 complaints 
were received ; 10,201 complaints were prosecuted, and 8,389 homes found 
or situations obtained for children. 

Parsons, J. Each for All and All for Each. Pp. xiii, 390. Price, 1.50. New 

York: Sturgis and Walton Company, 1909. 
The author's thesis is that advancing society continually creates larger 
opportunities for the individual and that, in like fashion, the services of indi- 
viduals, particularly in times of crisis, have tremendous social consequences. 
The illustrations are naturally from history. The chapter headings are often 
obscure, for instance, Diffusion, Succession, Divergence. The intention is to 
strengthen faith in the importance of the individual. The general philosophy 
is sound, but it is hard to see just what class in the community will be par- 
ticularly drawn to the book. 

Phelps, Edith M. (compiled by). Selected Articles on the Income Tax. 
Pp. viii, 135. Price, $1.50; Selected Articles on the Initiative and Refer- 
endum. Pp. 164. Price, $1.50. Minneapolis: H. W. Wilson Company, 
^ 1909. 
This handbook appears at a time when public interest in the income tax is at 
its height. The references are well arranged; the bibliography, while not 
exhaustive, contains all the material available in the average library. Tech- 
nical discussions have been omitted. A number of well selected reprints, 
chiefly from the "Congressional Record," "American Journal of Politics" 
and the "Nation," are included. There is no attempt to classify references 
as affirmative and negative, but a brief statement follows each entry, showing 
the general attitude of the author. 

Though prepared for the use of high school students, the volume con- 
taining the articles on the initiative and referendum is a valuable source of 
collateral readings for college classes. The most important recent discus- 
sions of the initiative and referendum are reprinted. Most of the material 
is drawn from the scientific magazines. All phases of the subject, from its 
operation in Switzerland and Australia to its applicability to American con- 
ditions, are presented. There is also a valuable bibliography. Debating 
societies will find this handbook indispensable for giving access to a much 
scattered but valuable literature. 

Poe, C. H. A Southerner in Europe (second edition). Pp. 162. Price, 

$1.00. Raleigh, N. C. : Mutual Publishing Company, 1909. 
The progressive editor of the "Progressive Farmer of North Carolina" went 
on a trip to Europe last year and wrote back to his paper fourteen letters 
describing his impressions of Europe. He sees the usual sights and some 
others, notably the fine roads, the fine stock and the fine farms of Europe. 
Especially was he impressed by the contrast between Southern agricultural 
methods and those of Europe. There are "no loose ends or ragged edges 
about European farming," he says, "no clods, no gullies, no weeds, no poor 
horses, no scrub hogs, no disgraceful tenant cabins." France he pronounced 

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248 The Annals of the American Academy 

a land of beauty, unmarred by one gully or galled spot or weedy patch or 
shackly cabin or turned out field, while of England and Scotland he said: 
"I have not in all my travel in England and Scotland seen more weeds and 
gullies than I have sometimes seen in a ten-acre lot in America." In con- 
clusion he declares that the lesson the South has to learn is "to care for 
our resources as well as Europe cares for hers and to educate our people 
as well as Germany educates hers." 

Reeder, R. R. How Two Hundred Children Live and Learn. Pp. 247. 

Price, $1.25. New York: Charities Publication Committee, 1910. 
For some ten years Dr. Reeder has been the superintendent of the New 
York Orphan Asylum, one of the oldest and best institutions for children in 
America. During this time it has moved from crowded congregate quarters 
in the city to a beautiful site on the Hudson and into attractive cottages. 

This volume is a record of the experience and observations of the author 
during this period. The account first appeared serially in "Charities and the 
Commons" and excited wide comment. It teems with evidences of keen insight 
into child nature. Give the child the proper incentive and almost anything 
can be done. Such topics as diet, play, industrial economics, moral and 
religious training and punishment are treated. 

Everyone who works for children — particularly those who are trustees 
or otherwise responsible for children's institutions — should read this book. 
In its field there is none better. 

Scott, J. B. American Addresses at the Second Hague Peace Conference. 

Pp. xliii, 217. Boston: Ginn & Co., 1910. 
This is a collection of addresses delivered at the Second Hague Conference 
by three members of the American delegation. They treat immunity of 
unoffending private property of the enemy on the high seas, the collection 
of contract debts, arbitration and the international prize court and the estab- 
lishment of a permanent court of arbitral justice. The discussion is general 
in its nature and easily understood by the average reader. Three intro- 
ductory addresses summarize what the author believes are the results of the 
Second Hague Conference. An appendix gives the various texts of the 
conventions referred to in the body of the book. 

Seligman, E. R. A. The Shifting and Incidence of Taxation. Pp. xii, 427. 
Price, $3.00. New York : Columbia University Press, 1910. 

Shackleton, E. H. The Heart of the Antarctic. 2 vols. Pp. lxx, 817. Price, 
$10.00. Philadelphia: J. B. Lippincott Company, 1909. 

Solar, Domingo Amunategui. Las Encomiendas de Indijenas en Chile. Pp. 

viii, 476. Santiago : Imprenta Cervantes, 1909. 
This first volume may be said to be an introduction to the study of the 
Spanish colonial system. The bulk of the work is devoted to a detailed 
analysis of the condition of serfdom to which the Indians were subjected 
under the Spanish colonial regime. The picture which he draws explains 

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Book Department 249 

the failure of the natives to make real industrial progress. In this volume 
the development of the colonial system is carried to the time of Philip IV. 
The work, when completed, will constitute an important contribution to 
Spanish colonial history, and will enable us to form a judgment on the 
relation of the Spaniards to the native races. 

Terry, T. Philip. Mexico. Pp. ccxl, 595. Price, $2.50. Boston: Houghton, 

Mifflin Company, 1909. 
This volume meets a need that has been long felt by American travelers. A 
number of guide-books of Mexico have been published during recent years, 
but in none of them has the accuracy of treatment been such as to justify 
the confidence of the traveling public. 

The first step in the right direction was taken by Baedekers in publishing 
a supplement to the second edition of the Guide Book of the United States, 
which supplement was considerably enlarged in the third edition. The 
difficulty with the Baedeker supplement was that the space devoted to Mexico 
was entirely too brief to do justice to the subject. In the present work, 
however, we have a guide-book constructed on the plan of a Baedeker, and 
sufficiently detailed to do justice to every phase of the subject. 

After the usual introductory sections, containing advice as to the plan 
of tours, railways, hotels, etc., there follows an excellent historical sketch 
of the country and its races. The main portion of the work is divided into 
ten parts, each devoted to a different section of the country. A general 
map of the republic, a railway map and twenty-five city plans are contained 
in the work. 

The existence of so complete and excellent a guide-book is certain to 
encourage travel to Mexico. Mr. Terry has done a real service to Mexico 
in preparing so excellent a guide-book, and he has also placed American 
travelers under great obligations. 

Townshend, A. F. A Military Consul in Turkey. Pp. 328. Price, $3.50. 

Philadelphia : J. B. Lippincott Company, 1910. 
Captain Townshend leads us on a long journey through the Asiatic and 
European provinces. Christian and Turkish rivalries, sordid conditions of 
life, the babel of tongues, reform schemes, the capitulations, the missionary 
question and many other interesting phases of the 'Turkish Problem" are 
passed in review. There is little attempt to pass judgment — which is doubt- 
less fortunate — but the author contents himself with describing what he has 
seen. In spite of the fact that this is a travel book, the personal element is 
kept strictly in the background. The book gives a vivid picture of Turkish 
life, always changing, always the same. The outlook for the future is doubt- 
ful. The young Turks have only won the first battle. The real test will 
come when they attempt the control of the nomad tribes of the Asiatic 
provinces. Even in Europe the movement is bound to suffer many reverses 
before its ambitious program will even be on the road to realization. Recent 
events amply justify the doubts expressed. 

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250 The Annals of the American Academy 

Transactions of the American Society of Sanitary and Moral Prophylaxis, 
Volume II. Pp. xvii, 246. New York: Society of Sanitary and Moral 
Prophylaxis, 1908. 
This society is organized for the purpose of popularizing knowledge con- 
cerning the character and prevention of social disease. The second volume 
of its proceedings greatly enhances the effectiveness of its previous work. 
It contains an excellent group of articles dealing with the various forms of 
social disease, with their character, effects, cure and prevention. Particular 
emphasis is laid on the desirability of such education previous to the college 
course as would give to the adolescent child an adequate knowledge of the 
character of the problems of social disease with which he will ultimately be 
called to cope. 

Warschauer, Otto. Zur Entwicklungsgeschichte des Sozialismus. Pp. xvi, 

403. Berlin: F. Bahlen, 1909. 
As a readable and unbiased exposition of the "classics" of Utopian Socialism 
of the nineteenth century this book will serve a useful purpose. Its title, 
however, is unfortunately ill chosen, leading the reader to expect a study 
of the evolution of modern Socialism, whereas in fact it is only a literary 
review and a chronicle of Saint Simonism and Fourierism, and a story of 
Louis Blanc as a social reformer. The author briefly indicates the influence 
of Louis Blanc upon Lasalle, hinting evidently at the latter's scheme of co- 
operative manufacturing associations assisted by the state. But that scheme 
was conceived by Lasalle merely as a catchword to win over the workmen 
who followed the leadership of the German apostle of co-operation, Schulze- 
Delitsch. Its influence upon the Socialist movement was short lived and has 
left no trace in modern Socialist theory. On the other hand, however, the 
marked influence of Fourierism upon the ideas of Karl Marx has received 
no attention from the author. 

Louis Blanc's demand of "the right to work," which Professor War- 
schauer has relegated to history as a dead issue (p. 399), has recently been 
revived in the advocacy by the British labor party of state insurance against 
unemployment. The British labor exchanges for the unemployed are preg- 
nant with possibilities of further development which may eventually compel 
social democracy to revise the orthodox revolutionary view cited by the 
author, that "in the present state the right to work is nonsense." 

Watkins, E. Shippers and Carriers of Interstate Freight Pp. 578. Chicago: 
T. H. Flood & Co., 1909. 

Wellman, F. L. Day in Court. Pp. 257. Price, $2.00. New York: The 

Macmillan Company, 1910. 
The following subjects are treated: "Advocate and Office Lawyer Con- 
trasted," "Physical Endowment," "Mental Endowment," "Educational Quali- 
fications," "Opportunity and Rewards," "Preparation for Trial," "The Court 
Room," "Art in Selecting the Jury," "Opening of the Jury," "Art in Direct 
Examination," "Art in Cross-Examination," "Art in Discrediting Documents," 
"The Summing Up." 



Book Department 251 

This volume deserves more than a mere passing notice. The style is 
interesting, the treatment of the subject original, and the author speaks from 
an observation and experience extending over many years of successful 
practice. 

Its perusal, however, will convince the reader that the author has too 
narrowly limited its scope. It is possible that any one may at some time 
have his "Day in Court," either as a litigant or as a witness. The book is 
valuable to the layman, since it contains many useful hints and suggestions 
as to how a witness should behave upon the stand and, with credit to himself 
and his cause, undergo the ordeal of a severe cross-examination. It is 
especially valuable to the young man or woman who contemplates entering 
or has entered the legal profession, and to the older lawyer it is entirely 
worth while. 

Good, wholesome advice is given to the practitioner concerning the coach- 
ing of witnesses : "Put him at ease, don't lead him, don't suggest how the 
facts ought to be in order to come within the latest decisions." How often 
is this rule violated, if not by the attorney, by the witness himself, with 
perhaps the connivance of the attorney. 

It is well that the author decries some of the practices too common at 
the bar and which cannot be condemned too severely, notwithstanding such 
a distinguished lawyer as Rufus Choate indulged in them, such as flirting 
with the jury during the trial of a case. 

Williams, H. S. Alcohol, How it Affects the Individual, the Community 
and the Race. Pp. viii, 151. Price, 50 cents. New York: The Century 
Company, 1909. 
Individual efficiency is curtailed, and the working life shortened, by the use 
of alcohol. The community suffers from alcohol because families are broken 
up, children are forced into dependency, and home life and parental care 
made impossible. The race is injured by alcohol because race continuity is 
broken and race progress retarded. The author has given a sane presenta- 
tion of the case against alcohol in a style that is both scientific and popular. 

Wylie, J. The House of Lords. Pp. x, 179. Price, is. London: T. Fisher 

Unwin, 1909. 
One expects from a book with this title a diatribe or a cold, conservative 
defense. A scholarly historical review exposing the weaknesses and 
strength of the Lords' position is a surprise. The discussion is fairly im- 
partial, though an enumeration of the unprogressive actions of the upper 
house in itself makes a formidable indictment. The discussion of the period 
since the reform bill is disappointingly brief. Mr. Wylie characterizes the 
present position of the Lords as that of a man deposed as driver of the 
engine and whose only duty is to put on the brake. It is putting on the 
brake so hard that the new driver finds "the deadlock so intolerable that 
there . . (is) danger of his dismissing the brakeman altogether." 

Youngman, Anna. The Economic Causes of Great Fortunes. Pp. 185. 
Price, $1.50. New York: Bankers' Publishing Company, 1909. 

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252 The Annals of the American Academy 

As typical of those fortunes which have been acquired for the most part 
through the activities and exertions of the individual, the author considers 
the economic causes underlying the formation of the Astor and the Gould 
estates. Although the former was the result of the fur trade and of land 
speculations and belongs to a much earlier period than does the latter, which 
is a product of a corporate regime, both can be and are analyzed by the 
author solely from the standpoint of the operations of the individual. How- 
ever, she points out that in discussing the fortunes of the last decade it is 
necessary to examine the character and activities of the group of capitalists 
of which a man is a member if one is to understand the economic causes 
which have assisted in the accumulation of his wealth. In this connection, 
as is to be expected, she deals with the "Standard Oil" and the "Morgan" 
groups. The concluding chapters are devoted to a discussion of the 
personal and non-personal factors involved in gain getting and to a very 
frank argument regarding the amount of social service rendered by a man 
of great fortune. The book, although containing nothing new or of a 
startling nature, is a very sane and fair-minded treatment of the subject, and 
is especially unique in the manner in which the author has grouped the 
material presented. 

Yung, Wing. My Life in China and America. Pp. v, 286. Price, $2.00. New 

York : H. Holt & Co., 1909. 
Chinese students in America will find an example to inspire emulation in the 
life story of Mr. Yung, the first Chinese graduate of Yale. Born of a humble 
family, the boy came to America through the efforts of a missionary who 
recognized his unusual ability. His education in this country was obtained 
by great personal sacrifices, which, however, did not prevent his making 
an excellent record in college, where he repeatedly carried off prizes in 
English composition. 

Though offered great inducements to take up an American career, he 
returned to devote his life to the advancement of his native country. He 
played an important part in the Taiping rebellion and subsequently went on 
various missions abroad for his country. His most important services of 
this sort have been in putting an end to the coolie trade to Peru, the promo- 
tion of the movement to send Chinese students to be educated in the west 
and the planning of the present anti-opium measures. The latter action was 
taken over a quarter of a century before the subject became one of inter- 
national importance. In spite of the fact that Mr. Yung has advocated 
reform under many conflicting governments, he has kept public confidence. 



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Bodk Department 253 



Alexander, De Alva S. A Political History of the Stale of New York. Vol. 

Ill, 1861-1882. Pp. iv, 561. Price, $2.50. New York: Henry Holt & 

Co., 1909. 
The third and concluding volume of Congressman Alexander's "History of 
New York" deals with the stirring years that span the period that opens with 
"the uprising of the North in 1861" and closes with Cleveland's election in 
1882. In this volume the author's treatment presents the same characteristic 
features, merits and defects, which marked the first two volumes of the work, 
which were published four years ago. 

Chief among its merits should be mentioned the judicious, interesting, 
and in the main impartial narrative and analysis of political events. This 
is all the more remarkable and praiseworthy as the author, an active poli- 
tician, is dealing with a period of comparatively recent date. Another pre- 
eminent merit which distinguishes this work and raises it far above the level 
of a mere state history is the relatively large amount of space given to 
national politics with a view to showing the intimate connection which 
existed between the politics of the nation and that of the Empire State. So 
ample and full is the discussion of national affairs that the title of this volume 
might fittingly be changed to read "The Political History of the State of 
New York and of the Nation as Viewed by a New York Politician." The 
mere enumeration of the names of some of the politicians of New York, 
more than a score in number, who also attained prominence in national 
affairs during this period, would suffice to indicate the close connection 
between the political history of New York and that of the nation, and the 
action and reaction of the one upon the other. This comprehensive treat- 
ment is the most important and commendable characteristic of the work. 

As was pointed out in the review upon the earlier volumes, 1 it is appar- 
ent that Dr. Alexander is thoroughly impressed with the transcendent im- 
portance of the role played by a few great men. In fact, he has subscribed 
to the view "that the history of a state or a nation is largely the history of 
a few leading men." It is, therefore, the careers of a few great leaders 
and their ambitious rivalries rather than the history of parties or policies 
with which he is principally concerned. The contests within the party for 
leadership, as that between Thurlow Weed and Horace Greeley, Reuben E. 
Fenton and Roscoe Conkling in the Republican party, and the rise of Horatio 
Seymour and Samuel J. Tilden successively to leadership in the Democratic 
party, are presented with a wealth of interesting detail. 

Moreover, just as in the earlier periods, so in the two decades covered 
by this volume, there are "two controlling spirits" and two great party 
leaders that occupy the center of the stage at one time and contend for 
political mastery, namely, Conkling and Tilden, the leaders of the Republican 
and Democratic parties respectively. It is with the career of these two 
leaders that the greater portion of the volume deals. This fact clearly 

J See Axnals, vol. xxix, pp. 228-230. 

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254 The Annals of the American Academy 

reveals the point of view of the author and indicates that the limitations 
and shortcomings of his treatment are largely due to the undue emphasis 
placed upon the career of the individual. 

Dr. Alexander presents many excellent pen portraits and characteriza- 
tions of the leading politicians. His account of the rise and operations of 
the Tweed ring and its final overthrow is especially well done, as is also 
that of the schism in the New York Republican party and the strife which 
followed between the "Stalwarts" and "Half-breeds," and the resulting elec- 
tion of Cleveland as governor. 

Only occasionally does the author's political bias portray itself. He has 
made excellent and discriminating use of the newspapers and other con- 
temporary literature, and the exact citation of his sources and the handling 
of secondary but important details in the footnotes is commendable. His 
style is clear, interesting and vigorous, occasionally perhaps a trifle too 
vigorous to suit the purist, as he some times lapses into colloquial English, 
as when he states that "Weed wabbled in his loyalty" (p. 85), "The Tilden 
managers shiver," and "threatened them with heart-failure" (p. 343). Also 
some of the striking page captions suggest the head lines of a yellow 
journal, as the following examples will demonstrate : "Lincoln's Iron 
Nerve" (p. 105), "A Bunch of Bad Men" (p. 177), "A Blow Below the 
Belt" (p. 369), "The Fate of Old Dog Tray" (p. 387), "Conkling Down and 
Out" (p. 464). An excellent index to the three volumes concludes the work. 

So satisfactory in general is this history of New York, that we would 
express the hope that Dr. Alexander may be led to continue his study and 
add a fourth volume to the series covering, let us say, the two decades 
since 1882, the date of the close of his last volume. 

Herman V. Ames. 
University of Pennsylvania. 



Barker, J. Ellis. Great and Greater Britain. Pp. ix, 380. Price, $3.00. 

New York: E. P. Dutton & Co., 1910. 
The appearance of a volume dealing with some of the more important British 
national and imperial problems is especially timely, but this book does not, 
however, deal extensively with the particular issues raised by the recent 
political agitations in the United Kingdom. The volume attempts to fore- 
cast the future of Britain: whether it is to be continued greatness or decay. 
The consideration of this question involves a discussion of the large prob- 
lems confronting British interests, as, for example, naval and military poli- 
cies, industry, unemployment and physical degeneration, foreign policy and 
the question of the colonies. The chief emphasis is laid on the necessity 
for military and naval efficiency, nearly half the book being devoted to the 
discussion of those subjects from various points of view. 

In general the book is good, in that it presents more or less clearly some 
of the serious problems which the future holds for British rule. Yet in 
many respects the book hardly fulfils the expectations of the reader. For 

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Book Department 255 

example, the question of the British colonies is vitally important in the future 
of Britain, and should properly receive careful consideration. It is true 
that the author has included a chapter on "Will the Colonies Secede ?" 
but instead of discussing the colonies, the condition in them and their rela- 
tions to the empire, the entire chapter of more than twenty pages is devoted 
to a rehash of the causes leading to the loss of the American colonies, after 
which the chapter ends with the somewhat inane question, "Will history 
repeat itself?" Again, the average reader can be only wearied by the long 
recital of the virtues of Cromwell's army, under the caption, "The Model 
Army of England," and even more so by the long drawn out discussion of 
the collapse of France in 1870 and its lesson to England. These two chapters 
are accorded seventy full pages, whereas the great questions of British in- 
dustry, labor, emigration and poverty receive a scant twenty-five. 

Less harping on the importance of readiness for war and a greater appre- 
ciation of problems of more immediate significance would have added ma- 
terially to the value and interest of the book. 

Walter S. Tower. 
University of Pennsylvania. 



The Cambridge Modern History. Volume XL The Growth of Nationalities. 

Pp. xxxix, 1044. Price, $4.00. New York : The Macmillan Company, 1909. 
This volume of the Cambridge Modern History covers approximately the 
years from 1845 to 1871, "an epoch of violent international disturbance, inter- 
posed between two generations of almost unbroken peace." It is the period 
marked by the upheavals of 1848, the subsequent reaction till 1859, and the 
decade of struggle which culminated in the unification of Italy and the con- 
solidation of Germany ; twenty-five years of epoch-making history, whose 
events are of much more than usual significance. The editors and authors 
had therefore an excellent opportunity ; they had to deal with forces and 
events of a very positive character, and in several cases at least with the most 
important historical phenomena of the nineteenth century. 

Aside from the topics that would necessarily find a place in a volume on 
this period, we note the commendable introduction of studies on the patriotic 
and nationalistic literature of the different peoples. Thus we have "German 
Literature, 1840- 1870," by K. Bruell ; "The National Spirit in Hungarian 
Literature," by A. B. Yolland, Professor of English Literature at the Uni- 
versity of Budapest; "The Reaction Against Romanticism in French Litera- 
ture, 1840-1871," by Professor Emile Bourgeois; "The Literature of the 
Risorgimcnto and After, 1846-1870," by C. Segre, Professor in the University 
of Rome; "National Influences in Bohemian and Polish Literature;" "Dano- 
Norweigian Literature, 1815-1865," and "Russian Literature, 1800-1900." Less 
directly connected with the nationalist movement in Europe are the chapters 
on "British Free Trade and Commercial Progress," on "The Indian Mutiny 
and British Colonial Affairs," and on "The Awakening of Japan." 

Like the other volumes of the Cambridge Modern History this is the 

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256 The Annals of the American Academy 

product of collaboration, twenty-six authors in all contributing, among them 
a number of distinguished foreign specialists. Professor Emile Bourgeois 
and M. Albert Thomas do the sections on France, Professor Masi, of the 
University of Florence, those on Italy, and Professor Oeschle, of Zurich, 
the chapter on Switzerland. On German affairs the editors obtained the 
co-operation of Professor . Meinecke, of Freiburg; Professor Friedjung, of 
Vienna, and Dr. RolofT, of Berlin. The senior editor, Mr. Ward, also 
contributes two good though somewhat detailed chapters on "Reac- 
tion in Germany and Austria, 1848-1849." The work by Dr. Roloff natu- 
rally excites especial interest since it deals with "Bismarck and German 
Unity." Unfortunately the attitude of the writer is so markedly Bismarckian 
that there is frequently not sufficient critical discrimination. On the whole, 
however, this would not be a fair criticism. Bismarck's own account of his 
motives and actions, as given us in his "Thoughts and Recollections," is 
usually subjected to the critical test of other and more reliable evidence, 
though the author finds it hard to approach the subject from any but the 
great chancellor's point of view. By way of illustration may be cited the 
discussions on the preliminaries of peace after Konigratz (pp. 454-456). 
Less critical is the treatment of the Ems Dispatch. Here Bismarck's ac- 
count of the incidents connected with the waving "of the red rag before 
the Gallic bull," and its importance as a factor in precipitating the Franco- 
Prussian War is accepted without modification (p. 463). The chapter by 
Professor Friedjung on the conditions in Germany between 1812 and 1862 
shows greater maturity; it constitutes one of the best treatments in English 
of this somewhat distracting and difficult subject. The military side of the 
Franco-German War is admirably treated, especially for the layman, by a 
specialist, Major F. Maurice, of the general staff. Especially worthy of note 
is the lucid account of the great flanking movement by the Germans, which 
cut off the French retreat from Metz, and of the enveloping movement at 
Sedan. 

Among the other chapters, one by H. V. Temperley, of Peterhouse, on 
"The New Colonial Policy," is suggestive, and like the contribution by W. F. 
Reddaway on Scandinavia, both interesting and scholarly. The volume con- 
tains the usual index and the detailed and somewhat hopeless bibliography 
characteristic of the whole work. 

W. E. LlNGELBACH. 

University of Pennsylvania. 



The Catholic Encyclopedia. Vols. I-VII. Pp. lxxxv, 5623. Price, $6.00 

each. New York: Robert Appleton Company, 1907-1910. 
A' full and accurate work of reference in English on the Catholic Church 
has long been a desideratum. Up to the present time English readers 
have been obliged either to search through technical works on theol- 
ogy or to content themselves with what was to be found in Addis and Ar- 
nold's "Catholic Dictionary," an excellent work, but one whose brief space 

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Book Department 257 

compelled the omission of many topics and the summary treatment of others. 
The present encyclopaedia, which will be completed in fifteen volumes of 
about 800 pages each, will remedy these defects and has the further advan- 
tage of being prepared by specialists in the various fields. Compared with 
the other two great works of reference on the church, Hergenrother's "Kirch- 
enlexicon," Catholic, and Herzog^s "Realencyclopadie," Protestant, it pre- 
sents certain marked differences. It is more comprehensive in the range of 
subjects treated, in the matter of religious statistics and the present status 
of Catholic institutions and above all it is profusely and excellently illus- 
trated ; on the other hand, the historical articles are generally more condensed 
and as a rule show evidence of less original investigation among the sources. 

It would be impossible in the limits of a short review to indicate all the 
subjects treated in the new encyclopaedia. Naturally it contains an authori- 
tative statement and discussion of all the doctrines, customs, liturgy and 
institutions of the church. Articles are found on every country and import- 
ant subdivision of a country, accompanied by good colored maps indicating 
their ecclesiastical as well as political geography; on Christian archaeology 
and art ; on the various postulates of philosophy, scholastic and modern ; on 
non-Christian religions and the various Christian denominations. One of the 
valuable features of the work is the attention paid to biography which is very 
fully represented. Not only do we find, as might be expected, the lives of all 
important churchmen but also of all Catholic laymen who have achieved 
anything of importance in art, science or literature. There are, besides, 
many articles on subjects that could not be regularly classified, such as labor 
arbitrations, bull-fights (which are strongly defended by a Spanish contribu- 
tor), alcoholism, etc. Two articles especially instructive to non-Catholics 
are Addresses, giving the proper form in which to address the various grades 
of church dignitaries and Abbreviations, containing a list of those employed 
to indicate the members of the various religious orders and congregations. 

The contributors to this great work of reference are drawn from all 
countries. Americans predominate so far as numbers are concerned, but 
many of the most important subjects have been assigned to well-known 
foreign scholars, English, Belgian, French, German, Austrian and Italian. 
Too high praise cannot be given to the general tone of the whole work. 
The articles are scholarly, temperate, fair and generally abreast of the most 
recent research. The bibliographies are useful and some of them remarkably 
full. Occasional errors naturally have crept in in places, often due no doubt 
to the necessity of condensation — as where the relations of Charlemagne and 
Hadrian I are represented as being uniformly cordial, or where the Cluniac 
monasteries are said to have been from their foundation a close corporation 
under the absolute control of the Abbot of Cluny, or the ascription of Charles 
Martel's nickname to his victory at Tours. Of the various articles in 
these volumes it will cause some surprise to note that those prepared by the 
Italian contributors are from a scholarly point of view inferior to the 
others. They are more apt to be controversial and are sometimes lacking in 
historical sense, as where the origin of the Canons Regular is traced back 

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258 The Annals of the American Academy 

to the Apostles, which may be compared with the sounder treatment of the 
same subject in the article on the Rule of St. Augustine. A similar com- 
parison might be instituted in regard to the story of the discovery of the 
True Cross. Professor Marucchi in his article on the Cross declares it would 
be unsound to reject the universal tradition of the church that it was dis- 
covered by the mother of Constantine in the year 326, while Professor Kirsch, 
of Fribourg, in his article on St. Helena dismisses the whole story in a 
single sentence as a legend. Notwithstanding these and certain other criticisms 
of detail, it must be said that the Catholic scholarship of the country can 
congratulate itself on the production of a work of reference that will com- 
mand universal respect and meet a long-felt want. 



A. C. Howland. 



University of Pennsylvania. 



Churchill, W. S. Liberalism and the Social Problem. Pp. xxiii, 414. Price, 

$1.50. New York: G. H. Doran Company, 1909. 
Liberalism is long lived in England even in the form it took in the eighties. 
Though there is a change in attitude as to some of the great national ques- 
tions confronting England — notably in an appreciation of the value of the 
colonies — there is much in these speeches which recalls the attitude of Glad- 
stone and Bright. There is the same confidence in what can be accomplished 
by representative government, the same belief in free trade and that democ- 
racy is a force for peace. 

But besides the old doctrines others are advanced which show the new 
Liberalism in strong contrast to the old. Industrial legislation, labor ex- 
changes and numerous activities outlined in the budget controversy make 
it interesting to speculate whether the old Liberals would recognize their 
children. Certainly the taxation schemes, the elimination of the "diseased 
industries" by the state and a host of other "Liberal" propaganda emphasize 
how little does a party name always indicate the same thing. 

Mr. Churchill's book treats of three subjects: the relation of the present 
government to the colonies, its social legislation and the budget. A better 
view of the complicated and to the outsider often conflicting elements of 
present English politics is hard to find. 

Chester Lloyd Jones. 
University of Pennsylvania. 



Foster, J. W. Diplomatic Memoirs. 2 vols. Pp. 672. Price, $6.00. Boston: 

- Houghton, Mifflin Company, 1909. 
No one who is interested in the influence of the United States in world affairs 
can fail to enjoy the story of this one of the longest of American careers in 
the foreign service. Mr. Foster's experience covers service in Mexico, Russia 
and Spain; he has served as Secretary of State, as the representative of the 

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Book Department 259 

government on various special embassies and as legal adviser to China after 
her disastrous war with Japan in 1894. 

Frank criticism and sincere appreciation of the governments to which 
he has been accredited mark these volumes. In Mexico, General Foster was 
our representative during its trying period of regeneration. The work of 
Diaz in bringing his country to its present place in the family of nations is 
warmly praised, but the dangers of disregarding the value of training a 
people in real self-government are also pointed out. In the mission to Spain 
his familiarity with the Spanish language and character brought to General 
Foster an intimate acquaintance with the leading statesmen of the peninsula. 
The chapters covering this period of his career are the most interesting 
portion of the volumes and give a sympathetic and appreciative estimate of 
such men as Canovas, Sagasta and Castelar. These missions and an account 
of the intervening one to Russia occupy the first volume. 

The second volume treats mainly of special commissions on which the 
author served, including reciprocity negotiations, the Bering Sea arbitration, 
Hawaiian annexation, Canadian affairs and the Second Hague Conference. 
The discussion of the negotiations between China and Japan brings out much 
new material valuable for the student of the Far East. There are also 
excellent character sketches in the chapters "Presidents Under Whom I 
Served" and "Secretaries of State." These estimates will modify the com- 
monly accepted opinions as to the ability of some of our statesmen. Fish 
was able but not of the first rank. Evarts was a good lawyer but out of 
place "in the State Department," and Blaine, though brilliant, had serious 
faults as a diplomatist. These criticisms are written with a judicial fairness 
and substantiated by convincing illustration. 

It is interesting to read the opinion of an authority of such weight upon 
the value of a permanent foreign service. General Foster states, "I am a 
strong advocate for the establishment of a regular career for the diplomatic 
service — I would have all secretaries of legation enter the service through a 
competitive examination ; continue in office during good behavior ; and, as 
they should prove worthy, have them promoted to ministers. But I doubt 
whether the time will ever come when our government will think it wise to 
confine the appointment of ministers and ambassadors entirely to promotions 
from the posts of secretary." 



University of Pennsylvania. 



Chester Lloyd Jones. 



Hedin, Sven. Trans-Himalaya. 2 vols. Pp. xl, 875. Price, $7.50. New 

York : Macmillan Company, 1909. 
"Trans-Himalaya" is the narrative account of one of the most important 
exploring expeditions undertaken in recent decades; an expedition which in 
results obtained and difficulties overcome deserves to rank with the work of 
Stanley in Africa. The relatively short time available for the writing of the 
two volumes— the author confessing that it was done in a little over a hundred 

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2(5o The Annals of the American Academy 

days — made it impossible to include the worked-out results of much of the 
scientific observations, those being reserved for a later work. This fact, 
however, does not prevent the inclusion of such an impression of what those 
scientific results are as to satisfy the average individual. 

The volumes are essentially a running narrative of the events incidental 
to the author's journeys from Simla, through two years of wandering in 
Tibet and back to the starting point. In much of the book the text very 
evidently is simply a direct transcription from the explorer's daily journal, 
since trivial and irrelevant items are often found interspersed with the details 
of important investigations and discoveries. Yet it must be admitted that 
this evidence of literal transcription of events just as they came to Hedin 
is one of the chief factors in giving a strong fascination to the whole 
account. 

It is entirely beyond the possibility of a short review to set forth the 
many results of the expedition as revealed in the "Journal," but in general 
they may be summarized as sufficing to fill in accurately large sections of the 
map of Asia, heretofore left blank or guessed at. Material changes in certain 
aspects of the map of Central Asia will be necessary when these scientific 
observations are fully worked out. In accomplishing his purpose, Hedin not 
only had to overcome constant obstacles put in his way by native officials, 
but also was forced to run grave dangers of personal injury. In fact, the 
relations between explorer and native officials is not the least interesting 
thread of the narrative, for it was only through the exercising of unflagging 
persistence, tact and indomitable courage, that he managed to accomplish 
anything. 

Walter S. Tower. 
University of Pennsylvania. 



Jevons, W. Stanley. Investigations in Currency and Finance. Pp. xxvi, 347. 

Price, $7.50. New York: The Macmillan Company, 1909. 
All students of economics will welcome the appearance of a second edition 
of Jevons' Investigations in Currency and Finance, the first edition of which 
has been out of print for about five years. In his introduction to the first 
edition, written in 1884, Professor Foxwell, commenting upon the late pub- 
lication of these essays in book form (some of which were at that time 
twenty years old), said that the appearance of the volume could hardly have 
been more opportune, for never had there been more general attention 
directed to the subjects of which they treat than at that time. This state- 
ment is probably even more true for 1910 than it was for 1884. Mr. Jevons 
referred to the papers as falling into two groups, "the first comprising Papers 
I to VIII, treating of prices, commercial fluctuations, crises, etc.; while the 
second, comprising Papers IX to XIV, treats more strictly of currency 
. . ." The great increase in the world's gold production in recent years, 
with its effects upon prices, interest rates, and general commercial and social 

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Book Department 261 

conditions, is renewing the problems created by the Californian and Austra- 
lian gold discoveries of a little over a half century ago, to which over forty 
per cent of this book is devoted, and toward the solution of which Jevons 
contributed so much. 

Americans at the present time are greatly interested in the subject of 
currency and banking reform. One of the most serious defects in our 
present currency system, and one to which the National Monetary Commis- 
sion is now devoting much attention, is its inelasticity, or irresponsiveness to 
seasonal and other variations in the demand for money. Along this line 
Jevons' essay On the Frequent Autumnal Pressure in the Money Market and 
the Action of the Bank of England has become a classic. 

The second edition of this book differs from the first principally in being 
somewhat abridged ; the fifty-two page bibliography has been omitted, as like- 
wise the large historic diagram, and the diagram of Bank of England 
accounts. Some minor corrections have been made, and the figures for one 
of the charts have been recalculated ; otherwise the text is unaltered. 

E. W. Kem merer. 
Cornell University. 



Korkunov, N. W. General Theory of Law. Translated by W. G. Hastings. 

Pp. xiv, 524. Price, $3.50. Boston : Boston Book Company, 1909. 
In his endeavor to establish a true conception of law, the author reaches the 
conclusion that law is an order established by men as a rule for their mutual 
relations. Juridical norms, unlike scientific norms, are conventional. Morality 
discovers the criterion for the evaluation of the interests of the individual ; 
law settles the principles of the reciprocal delimitation of the conflicting 
interests of different individuals. 

The influence of German writers on RechtsphilosopJiie, to whose works 
there are frequent references, appears in the assertion that the subjective 
conception of law, not destructible by positive law, is as essential to the 
juridical life, as religious sentiment to religion and conscience to morality. 
Yet it would seem that this is valued only as an influence in determining what 
the law will be, for it is rejected as a source of law because it is no index 
of the obligatory character of law. 

Within the definition of positive law as the rules set and enforced by 
society, — custom, judicial practice and legislation are deemed the only true 
sources of law. The relation between these sources is inadequately developed. 
With respect to custom, while admitting it is the primitive form of positive 
law, the author takes a position midway between that of Austin and the 
writers of the historical school and holds that it becomes juridical only when 
to its observance is added the consciousness of its obligatory character. He 
finds difficulty in establishing judicial decision as an independent source of 
law, for it presupposes existing custom or legislation which is obligatory. He 
cannot admit the power of a court to decide according to its own will, but 

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262 Annals of the American Academy 

finds some measure of creative activity in its power to add to the unconscious 
observance of a habit the consciousness of its utility and to develop out of 
legislative enactments a logical unity not inhering in the varied and possibly 
conflicting statutes. The basis for the obligatory character of legislation is 
found in the fact that it is set up by organs of power which can constrain 
individuals by force to submission. Yet custom is deemed capable of being 
law in spite of a legislative prohibition to the contrary, — but this, only 
where the opinion that the legislation is unjust is shared by everybody, includ- 
ing the tribunals. 

So in effect the author puts himself in accord with that definition of law 
as the rules enforced in courts of justice. In spite of occasional leanings 
towards historical and metaphysical theories, he is more closely akin to the 
analytical jurists than he seems willing to confess. The work is to be com- 
mended for its critical review of the salient doctrines of continental, and 
more especially, German jurists, its masterly annihilation of the Naturrechi 
theories, and its crispness of diction and clarity of thought which render it 
free from the tediousness of most philosophical expositions of law. 

Thomas Reed Powell. 
University of Illinois. 



Tolman, W. H. Social Engineering. Pp. viii, 384. Price, $2.00 net. New 

York: McGraw-Hill Book Company, 1909. 
Were it not for the sub-title of this book, "A record of things done by 
American industrialists employing upwards of one and one-half million of 
people," one might easily be misled as to its contents. The work is not a 
survey of the social field with a view to the establishment of certain changes 
of structure which would naturally be the function of the social engineer. On 
the contrary, it is a cyclopedia of those isolated, detached and somewhat 
miscellaneous efforts of large employers individually to better the conditions 
of their own groups of employees, without regard to the conditions of others. 
To this spirit of co-operation of employers and employees the author has 
given the name mutuality. 

To illustrate what may be accomplished by this method he has collected 
a large mass of useful information which is alike valuable to the industrialist 
and to the student. He illustrates the value of making experiences rather 
than theories the basis of reforms. He shows that practical sagacity does 
not wait to begin the task of social betterment until a universal scheme has 
been devised by which all maladjustments may be at once corrected. His 
optimistic conclusion, is that mutuality as exemplified in his numerous illus- 
trations amply repays the employer for all its costs and pioneers the way for 
a gigantic scheme of social engineering which will ultimately include in its 
benefits all the other millions employed in social production. 

J. P. LlCHTENBERGER. 

University of Pennsylvania. 

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Book Department 263 

Trevelyan, G. M. England in the Age of Wycliffc. Pp. xvi, 380. Price, $2.00. 

New York : Longmans, Green & Co., 1909. 
The popularity of this book, originally composed as a dissertation presented 
in competition for a fellowship at Trinity College, Cambridge, has been due 
no less to its lucid style and clear presentation than to its sound scholarship. 
That it has attained its end in depicting English political and religious life 
in the later fourteenth century to the general reader, as well as to the 
specialist, is attested by the numerous editions called for since its first appear- 
ance ten years ago. The first edition left the press in February, 1899, and 
was followed in June of the same year by a second. This was reprinted in 
January, 1900. A third edition appeared in 1904, with a reprint in 1906, and 
now the fourth edition has recently come from the press. 

The new editions have introduced but few changes in the text, which 
stands practically as first written with the exception of certain alterations in 
style, the correction of a few positive errors and some modifications in the 
treatment of the Peasants' Rising of 1381, due to a higher appreciation of 
the authority of an anonymous chronicle which had been treated with some 
suspicion in the first edition. The chief criticisms to which Trevelyan's book 
has been subjected in the reviews have been his survey in chapters four and 
five of the condition of the Church in England in the fourteenth century, 
which has been variously pronounced too favorable and too severe. This, 
in itself, is a testimony of its fairness, and he has made no alterations in the 
present edition, on the ground that having in later years devoted himself to 
other fields of history he has not had the time to devote to the necessary 
study of the sources in order to correct or confirm his former judgment. 
The period covered in "The Age of Wycliffe" is from 1376 to 1399, with an 
additional chapter touching the later history of Lollardry, down to the 
Reformation. This last chapter will prove to many readers the most inter- 
esting and important of the book. 

A. C. HOWLAND. 

University of Pennsylvania. 



Woodruff, C. R. (Ed.). Proceedings of the Cincinnati Conference for Good 
City Government and the Fifteenth Annual Meeting of National Munic- 
ipal League. Pp. vi, 487. Philadelphia : National Municipal League, 1909. 
The volume containing the proceedings of the Fifteenth Annual Conference 
of the National Municipal League presents an inspiring picture of the growth 
of civic effort in the United States. Such a volume as this cannot help but 
renew the faith and hope of those who may have become skeptical of the 
future of democratic institutions in the United States. Foreign observers 
have often pointed out to us that in no other country of the civilized world 
is so much unselfish effort put forth. If any further proof of this fact were 
necessary, one need but read the contents of this volume. There is noticeable 
throughout the papers presented, and especially in the admirable summary 
of the secretary of the league, Clinton Rogers Woodruff, Esq., a desire for 

(745) 



264 Annals of the American Academy 

constructive effort rather than for destructive criticism. The character of 
the papers presented gives ample proof of this fact. 

Of special value at these meetings is the series of round-table conferences, 
which serve as a kind of national clearing house, to which the experience of 
all sections of the country is brought. Three such round-table conferences 
were held at the Cincinnati meeting ; one on franchises, a second on methods 
of municipal improvement and a third on the short ballot. 

The volume contains a number of excellent papers on "Problems of 
Police Administration" and an illuminating discussion on the same subject, 
which was participated in by Professors Shepherd, Chadsey and Dunn, and 
Messrs. E. J. Ward, A. Leo Weil and Fred Tuke. 

L. S. Rowe. 
University of Pennsylvania. 



(746) 



INDEX OF NAMES 



Abbreviations — In the Index the following abbreviations have been used : pap., 
principal paper by the person named ; b., review of book of which the person named 
is the author ; v., reviewed by the person named. 



Abbot of Cluny. 739 

Abbott, Edith, 449, b. 

Abbott, F. F., 449, 6. 

Adams, J., Jr., 525-44, pap. 

Addams. Jane, 185, 225, 317, 463, b. 

Addis, 738 

Agee, H. P.. 32 

Alderman, E. A., 180 

Alexander, De A. S., 735, b. 

Alston, L., 715, b. 

Ames. II. V.. 479, r., 736, r. 

Andres. H., 185 

Andrews. C. S., 481 

Antony, Marc, 210 

Arnold, 738 

Astor, J. J.. 728 

Atkinson, E.. 165, 169, 171 

Augustus. 209 

Austin, 743 

Aveling, H. F., 449, 6. 

Babson. R. W., 593-616. pap., 617-26, pap. 

Bagehot, W., 217. 629 

Bailey, L. H., 185. b., 186, b. 

Baldwin, W. II.. Jr., 228 

Banfiold. E. J.. 715 

Banks. E. M., 143-49. pap. 

Barbour. T.. 418 

Barker. J. E.. 736, b. 

Barnett. G. E.. 450, b. 

Barron. C. W., 618 

Batv. T.. 404. b. 

Beer, G. L.. 186, b. 

Beethoven. 355 

Bellom. M.. 450. b.. 715 

Benda, W. T.. 460 

Benner. S.. 602, 603 

Bennet. W. S.. 481 

von Bernstorff, J. II.. 481 

Beveridgo, W. H., 207, b. 

Bianco. J.. 186. b. 

Biggie, J.. 450 

Bingham. T. A.. 720 

Bird, P. B.. 194 

Bismarck. 738 

Blaine, J. G.. 741 

Blanc. L.. 732 

Blow. Susan E.. 1S7. b. 

Boas. F.. 477 

von Bohm Bawerk. E., 715, b. 

Bohmert. A. V.. 448 

Bohmert. C. 442. 446 

Bohmert, W., 441-48. pap. 

Bordwpll, P.. 187. b. 

dp Bore. E.. 25 

von Borosini. V.. 357-67. pap. 

Bourgeois. E.. 737. 738 

Bourne. E. G.. 459 



Boyd. R. H., 131 
Bradford, S. S., 419 
Bradley, A. G., 187, b. 
Brand, R. II.. 715, b. 
Braucher, H. S., 325-333, pap. 
Brees, E.. 196 
Brewer. I. W., 715, b. 
Bridgman, R. L., 188 
Bright, J., 740 
Brittingham, 299 
Brooks, J. G.. 716. b. 
Brown, C. N.. 297-303, pap. 
Brown, E. E., 454 
Brown. J. A.. 168 
Bruell, K., 737 
Brumbaugh. M. G., 454 
Bryan, W. J., 183 
Bryce, J., 451. b. 
Buckley. J. M., 716. b. 
Burgunder. B. B.. 554-7S. pap. 
Burnham, D. H.. 316, 320 
Burroughs. J.. 419 
Buschkiel, R., 716 
Butler, Elizabeth B., 465, b. 

Cabot. R. C. 188. 451. b. 

Callender. G. S.. 207, b. 

Calvin, M. V.. 151 

Cameron. Agnes D.. 716 

Canovas.741 

Carlisle. J. G.. 180 

Carlyle, T.. 334. 464 

Carnier, J., 188 

Caro. L., 188 

Carpenter. C. M., 417 

Carpenter. C. W.. 188. 451, b. 

Carson, W. E., 452 

Cary. A., 248-51. pap. 

de las Casas. W. B.. 280-86. pap. 

Cassius. Dio. 209 

Casson. H. N., 716 

Castelar.741 

Catchings. T. C. ISO 

Chaddock, R. E.. 215, r., 466. r. 

Chadsev. 746 

Chamberlin, A. H., 417 

Chance. W., 449 

Channing. E.. 188. b. 

Chapman. F. M., 419 

Chapman. J. J., 189, b. 

Charlemagne. 739 

Cheyney. E. P.. 189. b. 

China, Quepn Dowager, 196 

Choate. R.. 733 

Churchill. W. S.. 740, b. 

Cicpro. 211 

Clark. J. B. 715 

Clark, W., 240 



(747) 



Index of Names 



Clark, W. G., 212 

Cleopatra, 210 

Cleveland, F. A., 208, 6. 

Cleveland, G., 237, 735, 736 

Cleveland, T., Jr., 241-47, pap. 

Clifford, H., 189, b. 

Cohen, J. B., 452, 6. 

Coiron, J., 26 

Colby, F. M., 452, 6. 

Coleman, G. W., 717, 6. 

Columbus, C, 47, 67 

Conant, C. A., 190, 483, el seq., 632 

Conkling, R., 735, 736 

Conyngton, Mary, 717, b. 

Cornman, O. P., 481 

Cornwall, W. C, 632 

Corwin, E. S„ 479 

Coulter, J., 632 

Cowen, J., 190, b. 

Cox, Minnie, 179 

Crawford, A. W., 287-96, pap. 

Croly, H., 191, b. 

Cross, A. K., 394 

Cruce\ E., 727 

Cunningham, W. McC, 657-73, pap. 

Curtin, J. A., 452 

Curtis, II. S.. 334-44, pap. 

Curtis, W. E., 220, 231-40, pap. 

Daish, J. B., 191, 6. 
Dana, C. L„ 481 
Davenport, C. B., 480 
Davenport, E., 452, b. 
Davis, J„ 126 
Dawbarn, C. Y. C, 717 
Dawe, G. G., 60-66, pap., 112 
Dealey, J. Q., 192, b., 465, b. 
Dearie, N. B., 453-, 6. 
De Groot, E. B., 313 
Deming, H. E., 193, 6. 
Devine, E. T.. 717, b. 
Dewe, J. A., 193, b. 
Diaz, 741 
Dickens, C, 470 
Dill, 211 

Dillingham, W. P.. 481 
Diocletian, C. V. A., 209 
Dixon, S. G.. 257 
Doblado, Genl., 196 
Dole. C. F., 453 
Douglas. S. F., 189 
Douglass, F., 126 
Drowne, Miss A. B., 418 
Drysdale. C. R., 717 
Duggar, J. F., 57 
Duguid, C, 483 
Dunn, J. P., 746 

Earhart, Lida B.. 194. b. 

Eastman, F. M., 466, b. 

Eaton, J., 213 

Eckhardt, B. A., 316, 366 

Edmands, J. R., 398 

Edmands, J. S., 419 

Edmondson, R. E.. 632 

Edwards, W. P., 417 

E^erton, H. E. 201 

Eliot. C. W.. 194 b.. 400, 717, b. 

Ellison, J. F., 114-119, pap. 

Elson, H. W.. 718. 6. 

Emerson, H.. 718. b. 

Enoek. C. R.. 195, 467, b., 719, b. 

Evans. H. H.. 104 

Evans, W. A., 194 

Evarts, W. M., 741 



Fagan, J. O., 467, 6. 

Fairlie, J. A.. 213 

Fanning, C. E., 719, b. 

Farwell, Mrs. F. F., 417. 

Fay, C. E., 393-400, pap. 

Fayant, F., 632 

Fenton, R. E., 735 

Ferrero, G., 209, b. 

Fetter, F. A., 715 

Field, M., 728 

Field, V., 417 

Fillebrown, C. B., 195, 6. 

Finley, W. W., 99-104, pap. 

Finney, J. H.. 67-76, pap. 

Fisher, I., 195, b., 212, 453, b., 715 

Fiske, J., 471 

Flick, A. C, 719, b. 

Flint, C. R., 481 

Folks, H., 480 

Forbes, B. C, 632 

Foreman, H. G., 316 

Foreman, M. J., 194 

Foster, J. F., 316 

Foster, J. W., 740, ■&. 

Foster, W. L., 57 

Fowler, W. W., 211, 6. 

Foxwell,742 

Fremont, J. C, 238 

Friedjung, 738 

Friedlander, M., 211 

Froebel, F. W. A., 187, 189 

Fry, W. H., 195, 6. 

Fuld, L. H., 720, b. 

Funk, W. R., 203 

Galton, F., 205, 462, 463, 721, b. 

Garcia, G., 195, b., 196. b., 433, 6. 

Garner, J. W.. 172-83, pap. 

Gamier, F., 190 

George, W. R., 721, &. 

Gephart, W. F., 196 

Gibson, A. EL, 212, b. 

Gibson, T., 454, b., 488, 489, 627-35, pap. 

Gilbert, G. K., 422 

Gillen, 477 

Gladstone. W. E., 190, 191, 740 

Glasson, W. H., 165-71, pap. 

Glenn, W. H., 660 

Goepp, P. H., 386-92. pap. 

Goldie, 724 

Goodnow, F. J.. 213, b. 

Gordon, H. L., 454, 6. 

Gorman. J. E.. 481 

Gray, B. K.. 196 

Greeley, H., 735 

Grenfell. W. T., 722 

Grice. Mary V., 454, 6. 

Griggs, E. H.. 455 

Groos, C, 335 

Groszmann. E.. 196 

Guild, I. T.. 418 

Guinness. Miss G.. 455, 6. 

Guiraud, 211 

Gulick, L. H., 481 

Hadrian I., 739 

Hale, E. E., 727 

Hall, G. S.. 335. 725 

Hamilton, A., 214. b. 

Hamilton, C, 196. •&. 

Hammacher, E., 468, b. 

Handel. 365 

Harriman. Mrs. E. H., 222. 240 

Harris. W. T.. 187 

Harrison. A., 199, 6. 



(748) 



Index of Names 



Harrison, B.. 218 

Hartley. G. D., 405. r. 

Hastings, W. G.. 743 

Hayes, C. II., 196 

Headland. I. T., 196, b. 

Hedin, S.. 741. b. 

Hegel, G. W. P., 187 

Henck. J. B.. 394 

Henderson. C. R., 197, b. 

Henry IV. 727 

Hcrgenruther, 739 

Herzog, J. J.. 739 

Hester, W., 157 

Hewitt, A. S., 240 

Hill, J. J.. 117, 599 

Hill, R., 724 

Hillier. A. P., 455, 722, 6. 

Hillquit, M., 197, b. 

Hitchcock, C. H.. 394 

Hobson, J. A.. 198, b. 

Holden, P. E., 152 

Holland. T. E.. 723. b. 

Holmes. Miss H. F., 417 

Holt, B. W., 633 

Holtzendorff, F.. 638 

Hopf, L., 198. 6. 

Horrocks, J., 198. 6. 

Hough, S. S.. 203 

Howard. Miss M. W.. 418 

Howes. Gertrude, 417, 418 

Howes. L. G.. 409-19. pap. 

Howitt. W., 477 

Howland, A. C, 210, v., 211. r, 

74o. r. 
Huebner. G. G.. 478. r. 
Iluebner. S. S., 483-505. pap., 

pap. 
Hughes. C. E.. 222, 373. 454 
Hunt. T. S.. 394 
Hutchins. B. L.. 199. b. 
Hutchinson, W., 481, 723, b. 

Jacobi. A.. 480 

James. W., 718 

Jerome. Amalie H., 345-40. pap. 

Tevons. W. S.. 639. 640. 742, b. 

Jewett. F. G.. 199 

Johnson, A., 480 

Johnson, E. R.. 20S. >•., 468. r. 

Johnston. M. G.. 199. b. 

Jones. C. L.. 214. r.. 465. r., 471, 

/•.. 740. r., 741. r. 
Jones. E. R.. 190 
Jones. J. P.. 199. b. 
Jordan, J. H.. 1-7. pop. 
Jowitt. Lettice, 723. b. 
Julia. 210 
Jiirgensohn. A.. 724. b. 

Kanda. N.. 481 

Kant. I.. 727 

Kautsky. 468 

Keasbev. A. Q.. 267 

Kelloy. Mrs. Florence. 480. 481 

Kelsev, C. 472. r., 475. /■.. 477. r. 

480 
Kelsey. F.. 266-72. pap. 
Kemmerer. E. W., 743. r. 
Kennard. Benlah. 374-81, pap. 
Kent. W., 306 
Kimball. Ethel M.. 419 
Kincrslev. C. 381 
Kirk. W., 200. b. 
Kirseh. J. P.. 740 
Knapp, S. A., 49. 167 



, 740 r., 
699-714. 



474. 



479 r., 



Knight. E. F.. 455, b. 
Knopf, S. A.. 201, b. 
Knox. P. C. 115 
Korkunov, N. W., 743, b. 
Kuang Hsu, 196 

Lamar, L. Q. C, 182 

Lancaster, Helen, 417 

Lanciani. R., 456 

Langheld. W., 724, b. 

Lanier. S., 42, 50 

Lansing, Miss M. F., 188, 6. 

Lanza, G., 394 

Lasalle. F. J. G., 732 

Latimer, Caroline W., 725, 6. 

Laughlin. J. L.. 469, b. 

Laut, Agnes C, 201, b. 

Lea. H., 725. b. 

Le Conte. J. N., 421 

Lee. G. W., 409-19, pap. 

de Leon, A.. 195 

Levy. H.. 725. b. 

Lewis. M.. 240 

Lichtenberirer. J. P., 456. b., 464, r., 470, 

>:, 481. 744. r. 
Licinus, C. 209 
Liefmann. R.. 470, b. 
Lincoln. A.. 189 
Lincoln, J. T.. 726. 6. 
Lindsav. S. M.. 480 
Lindsey, B., 272. 480 
Lingelbach. W. E.. 738, r. 
Littlefield, C. C. 419 
Llovd. H. D.. 456 
Lobingier. C. S.. 726 
I-ogan, J., 293 
Lorenz. M. O.. 470, r. 
Low, A. M.. 470. b. 
Lowell, P.. 419 
Lucas, C. P.. 201. &. 
Luther. M., 460 
Lyman, W. D.. 726. 6. 
Macaulay. T. B.. 197 
Macdonald. W., 202. 6. 
MacFarland, J. II., 412 
MacKinnon, 724 
Magoon. C. E.. 480 
Mallery, O. T.. 368-73. pap., 481 
Maltbus. T. R.. 215 
Marden. P. S.. 457. 6. 
Marlboro, Duke of. 152 
Marsh. B. C. 202. b.. 382-5, pap. 
Mattel. C. 739 
Marucchi. O.. 740 
Marx. K.. 461. 468. 469. 732 
Masi. E.. 738 
Mason. 477 

Mathews. J. L.. 203. b. 
Maunier, R.. 727 
Maurice. F.. 738 
McCarter. T.. 663 
McCormick. C. H.. 716 
McDaniel. B. F.. 417. 418. 419 
McKelway, A. J.. 156-64. pap. 
McKim, C. F.. 293 
McKinley, W.. 175 
McLaurin. J. L.. 180. et seq. 
McMillan. J. M.. 663 
Mead. E. P.. 727. b. 
Meinecke. F.. 738 
Mendez. A.. 25 
Moredith. W. R.. 175 
Merriam. C. H.. 422 
Mever. E. J.. 674-78. pap. 
Midzuno, K.. 481 



(749) 



Index of Names 



Mills, J. S., 203, b., 639 
Mills, R. Q., 180 
Mishaud, 237 
Mitchell, J., 481 
Moffltt, Miss F. L., 418 
Molesworth, G., 727, b. 
Molineaux, Marie A., 417 
Montgomery, D. EL, 727 
Moody, J., 545-53, pap. 
Morawetz, V., 457, 727, 6. 
Morgan, J. A., 477 
Morgan, J. P., 222 
Morse, E. S., 394 
Mosher, Mrs, 417, 419 
Mozart,355 

Muhleman, M. L., 633 
Muir, J., 419, 420, et seq. 
Muirhead, J. H., 203, 0. 
Muirheid, W. G., 273-79, pap. 
Miiller, E., 728 
Munford, B. B., 204, 6. 
Munro, W. H., 213 
Murphy, E. G., 471, &. 
Myers, G., 728, b. 

Nearing, Nellie M. S., 476, r. 
Nearing, S., 207, r., 216, r. 
Nero, 210 

Nevinson, H. W., 206 
Newman, Col., 57 
Neymarck, M., 487 
Nicholas, F. C, 689-98, pap. 
Niles, W. H., 394 
Nolen, J., 217-28, pap. 
Norton, E., 506-24, pap. 
Norton, J. P., 630 
Norton, L. A., 679-88, pap. 
Nowell, 394 
Oeschle, 738 

Olmsted, F. L., 294, 316 
Oppenheim, L., 457 
Otis, E. O., 204, .&. 

Page, W. H., 180 

Paish, G., 634 

Palisto, V. H., 457, &. 

Parker, G. A., 313 

Parsons, H., 481 

Parsons, J.. 729, b. 

Parsons, Marion It., 420-25, pap. 

Parsons, P. A., 204, 458, b. 

Patten, S. N., 213 

Paul, 718 

Peabody, F. G., 458, b. 

Peixotto, E. M., 436-40, pap. 

Peixotto, S. S.. 436, 438 

Pelham, Mrs., 364 

Penn, W., 293 

Perkins, D. H., 318 

Phelps, Edith M., 729, b. 

Philip IV, 731 

Phillips, U. B., 37-41, pap. 

Pic, P., 204, b. 

Pickering, E. C, 394 

Pinchot, G., 73 

Pingree, H. S., 384 

Pitt-Rivers, 477 

Plato, 334, 718 

Plehn, C. C, 472, b. 

Poe, C. H., 42-51, pap., 166, 729, 6. 

Pourtales, Count. 394 

Powell, E. T., 473, b. 

Powell. T. R., 744, r. 

Pratt, J. H., 105-113, pap. 



Proudhon, P. J., 468 
Purse, T., 120-23, pap. 

Rabiris, Postuhumus, 211 

Randall, Bertha, 419 

Rankin, G. A., 459 

Ratzel, F., 477 

Raymer, G., 297 

Reddaway, W. F., 738 

Redding, R. J., 57 

Reed, S. R., 16-24, pap. 

Reeder, R. R., 73u, b. 

Renstrom, H., 417 

Reyburn, J. E., 295 

Rhodes, C, 724 

Rhodes, J. P., 459, 6. 

Richardson, N. A., 459 b. 

Riis, J. A., 459, b. 

Kipley, W. Z., 481 

Robbins, E. C, 460, .6. 

Uobinson, C. M., 350-56, pap. 

Kobinson, M. H., 213, r. 

Kockefeller, J. D., 171, 222 

Rodbertus, K. J., 468 

Koeder, F., 460 

Rollins, M.. 579-92, pap. 

Rolofr", G., 738 

Roosevelt, T., 73, 175, 191, 218, 272, 304, 

424 
Rosewater, V., 473, r. 
Rossiter, W. S., 205, b. 
Roth, F., 260-65, pap. 
Rothrock, J. T., 252-59, pap. 
Rothschild, A., 628 
Rousseau, J. B., 474 
Rowe, J., 418 

Rowe, L. S., 467, r., 480, 746, r. 
Royce, J., 423 
Ruskin, J., 464 
Ryder, G. E., 194 

Sagasta, 741 

Saint-Leon, Et Martin, 205 

Saleby, C. W., 205, b. 

Sargent, D. A., 480 

Schachner, R., 196 

Schapiro, J. S.. 460, b. 

Schenk, F. S., 461, b. 

von Schiller, J. C. F., 335, 447 

Schonheyder, K., 474, 6. 

Schubert, 355 

Schulze-Delitsch, EL, 732 

Scott. J. B., 730, b. 

Scudder, S. II., 394, 395 

Seeck, O., 211 

Segre\ C, 737 

Seller. C. L., 209, r„ 467, r. 

Seligman. E. R. A.. 461, b., 730 

Selwyn-Brown, A.. 631, 633. 636-45, pap. 

Sergeant, C. S., 663 

Serviss, G. P., 419 

Seymor. EL, 735 

Shackleton, E. EL, 730 

Shahan, T. J., 481 

Shakespeare, 629 

Sharp, D. L., 419 

Shaw, A., 174, 213 

Shepherd, W. R., 746 

Shibusawa, E., 481 

Silburn, P. A., 461 

Small, A. W., 205, &. 

Smoot, T. A.. 168 

Snyder. C, 633. 634, 646-56, pap. 

Soiar, D. A., 730, b. 



(750) 



Index of Names 



Solenberger. E. D., 481 

Sonibart, W., 468, 409 

Spargo, J., 461, b. 

Spencer, ii., 217, 335, 477, 636 

Stangeland, C. E., 409, r., 4i4, r. 

Steensland, li., 3U0 

Steiner, E. A., 474, b. 

Stevens, It. P., 003 

Stiles, C. W., 170 

Stoddard, Bessie D., 426-35, pap. 

Stone, A. 11., 8-15, pap. 

Stone, C. A., 417 

Stowell, E. C., 402, b. 

Streeker, 017, 618 

Sullivan, J. J., 462 

Sully, Duke of, 727 

Sully, D. J., 153 

Sumner, Helen L., 475, b. 

Surface, G. T., 25-36, pup., 401-8, pa,. 

Swan, C. A., 206, b. 

Taft, W. H.. 175, et seq., 632, 633 

Talbot, E. M., 419 

Tanner, E. P., 206, b. 

Tatum, S., 77-80, pap. 

Taylor, G. R., 304-21, pap. 

Temperley, H. V., 738 

Tenney, 298, 299 

Terry, T. P., 731, b. 

Tboinas, A., 738 

Tbomas, C, 477 

Tbomas, D. Y., 150-55, pap. 

Thomas, W. I., 206, 476. b. 

Thompson, H., 134-42. pap. 

Thompson, J. G., 477, b. 

Thomson. J. S., 196, b., 197 

Thoreau, H. D.. 419 

Tiberius, 210 

Tilden, S. J., 735 

Tillman, B. R.. 182 

Tingley. C. L. S.. 661 

Tolman, W. H., 744, b. 

Torrev, B., 419 

Tourg6e, A. W.. 134 

Tower, C, 481 

Tower, W. S., 737, v., 742. r. 

Townshend, Lord, 384 

Townshend, A. F., 731, b. 

Tracy. S. M., 52-59, pap. 

Trent. W. P., 180 

Trevelyan. G. M., 745. b. 

Tugan-Baranowsky, 469 

Tuke, F.. 746 

Tull. J.. 202 

Tuttle. C. A.. 715 

Tyler, C. M.. 477 

Upham, H. S., 418 

Van Allen, W. H.. 418 
Vanderbilt, C, 581 



Vanderbilt, G. W., 407 
Vicario, Leona, 453, 454 
Vilas, H., 298, 300 
Villiers- Wardell, J., 462, b. 

Wagner, 355 

Wallon, 211 

YValz, K., 206 

Warbasse, J. P., 215, 6. 

Ward, A. W., 738 

Ward, E. J.. 746 

Ware, Mary L., 397 

Warfield, E. D., 481 

Warren, G. F., 206 

Warschauer, O., 732, b. 

Washburn, F. S., 63, 81-98. pap. 

Washington, B. T\. 13. 124-33. pap., 149, 

177, 179, 478, b.. 481 
Washington, G., 239 
Watkins, E., 732 
Watson, 163 
Watson, C. B., 206, b. 
Webb, S., 199 
Weber, A. P., 213 
Webster, E. S., 661 
Weed, T.. 735 
Weil, A. L., 746 
Wellman, F. L., 732, b. 
Westermarck, E., 477 
Whetham, Catharine D.. 462, b. 
Whetham, W. C, 462, b. 
Whipple, J. S., 251 
White, J. E., 178. 179 
White, S. V.. 634 
Wilcox, D. F.. 213 
Williams, H. S., 733, b. 
Wilson, J., 62 
Wilson, J. H., 480 
Wilson, W., 207, 479, b. 
Witmer, L., 481 
Wolcott. Mrs. W. V.. 418 
Wood, 387 
Wood, L., 480 
Wood. S., 480 
Woodruff, C. E., 215. b. 
Woodruff, C. R., 745, b. 
Woolston, H. B.. 463, b. 
Wright, J., 634 
Wu Ting-fang, 481 
Wycliffe, J.. 745 
Wylie, J., 733. b. 
Wyman, W., 481 

Yolland, A. B.. 737 
Youngman. Anna, 733, b. 
Yovanovitch, V., 463. b. 
Young, W., 734. b. 

de Zamora. F. S.. 195 
Zirngiebel, Frances, 417, 418 
Zumoto, M., 481 



f7SO 



Index of Subjects 
INDEX OF SUBJECTS 



[Titles of articles are printed in small caps.] 



Accounting. "Profit Making in Shop 
and Factory Management," by C. W. 
Carpenter, note, 451. 
Africa. "The Union of South Africa," 
by R. H. Brand, note, 715. 

"Zwanzig Jahre in deutschen Kolo- 
nien," by W. Langheld, note 724. 
Agriculture. Agricultueal Revolu- 
tion a Necessity, 42-51. Importance 
of agriculture, 42 ; Negro and imme- 
grant, 45 ; improvements in the South, 
46 ; agricultural education, 49 ; pre- 
requisites of southern development, 
50. 

Cotton in Southern Agricultu- 
ral Economy. See Cotton. 
"Dry Land Farming, Its Principles 
and Practices," by W. Macdon- 
ald, note, 202. 
Economic Needs of the South, 
165-71. Obsolete methods, 165; 
agricultural education, 167 ; 
small fruits, 168. 
The Need for Agricultural Edu- 
cation, 150-55. Need for, 150 ; 
diversified crops, 152 ; examples 
of demonstration forms, 153 ; 
agricultural colleges, 154. 
The Negro and Agricultural De- 
velopment. See Negro. 
New Farm Crops for the South, 
52-59. Disadvantages of single 
crop, 52 ; comparison of southern 
and northern states, 53 ; charac- 
teristic southern products, 55 ; 
crops to be introduced, 57. 
"The Rise and Decline of the Wheat 
Growing Industry in Wisconsin," 
by J. G. Thompson, review, 477. 
"The Training of Farmers," by L. 
H. Bailey, note, 186. 
"Alcohol, How it Affects the Individual, 
the Community and the Race," by 
H. S. Williams, note, 733 
Appalachian Mountain Club. See Rec- 
reation. 
Appalachian (Southern) Park Re- 
serve as a National Playground. 
See Recreation. 

"Banking and Currency Problems in the 
United States," by V. Morawetz, note, 
727 

Biography. "Memoirs of My Life," by 
F. Galton, note, 721 
"The Speeches of Joseph Cowen," 
note, 190 

Bonds and Stocks, Convertible, 579- 
92. What is a convertible security, 
579 ; extraordinary privileges, 580 ; 
- reduction of fixed interest charges 581 ; 
financial advantages of convertible 
stocks, 582 ; profits of convertible 
securities, 583 ; popularity of convert- 
ible securities, 584 ; price action of 
convertible securities, 585 : conversion 
privileges, 586: true estimate of value, 
587 ; disadvantages of convertible 



(75 



stocks, 588 ; methods of converting 
redemption rights, 591 

Canada. "A Historical Geography of the 
British Colonies," vol. v, Canada, by 
C. P. Lucas and H. E. Egerton, note, 
201 

'"The Making of Canada," by A. G. 
Bradley, note, 187 
Child Labor in the South, 156-64. 
Child labor in industry, 156 ; extent 
of child labor, 157 ; children in textile 
factories, 160 ; legislation and law en- 
forcement, 160. 
Children. "New York Society for the 
prevention of Cruelty to Children," 
note, 728. 

'"How Two Hundered Children Live 
and Learn," by R. R. Reeder, note, 
730 
Chile. "Las Encomiendas de Indijenas 

en Chile," by D. A. Solar, note, 730 
China. "Court Life in China," by I. T. 
Headland, note, 196 

"My Life in China and America," by 

W. Yung, note, 734 
"The Chinese," by J. S. Thomson, 
note, 196 
Church. "The Catholic Encyclopedia," 
review, 738 

"Our Foreign Missionary Enter- 
prise," by J. S. Mills et ah, note, 
203. 
"The Rise of the Medieval Church," 
by A. C. Flick, note, 719 
Commerce. "Procedure in Interstate 
Commerce Cases," by J. B. Daish, 
note, 191 
Conservation. Forest Resources and 

Conservation. See Forests. 
Cotton in Southern Agricultural 
Economy, 1-7. Location of cotton dis- 
trict, 1 ; amount and value of crop, 3 ; 
progress of cotton growing, 5. 

Financing the Cotton Crop, 16-24. 

Marketing of cotton, 16 ; necessity 

of early sale, 18 ; size of crop, 20 ; 

banking scheme proposed, 21. 

Crime. "Responsibility for Crime," by 

P. A. Parsons, note, 458 

Diplomacy. "Diplomatic Memoirs," by 

J. W. Foster, review, 740 
Disease. "Preventable Diseases," by W. 
Hutchinson, note. 723 

Tuberculosis. "A Preventable and 
Curable Disease," by S. A. Knopf, 
note, 201 
"The Great White Plague," by E. O. 
Otis, note, 204 
"Divorce," by J. P. Lichtenberger, note, 
456 

Eastern Problems. "Problems of the 
Middle East," by A. Hamilton, review, 
214 

"The Near-Eastern Problem and the 
Pan-German Peril," by V. Yovano- 
vitch, note, 463 

2) 



Index of Subjects 



Economics. "The Basis of Ascendency,*' 
by E. G. Murphy, review, 471 

"By What Authority," by J. II. 

Muirhead, note, 203 
"The Cameralists," by A. W. Small, 

note. 205 
"The City of the Dinner-Pail, " by 

J. T. Lincoln, note, 726 
"The Commonweal.** by A. P. Hil- 

lier, note, 722 
"The Conflict between Private 
Monopoly and Good Citizenship," 
by J. G. Brooks, note. 710 
"Economic and Fiscal Facts and Fal- 
lacies," by G. Molesworth, note 
727. 
"Economic Aspect of Lengthening 
Human Lite." by I. Fisher, note, 
195 
"History of Economics," by J. A. 

Dewe. note, 193 
"Kapitalen som faktor i menneskets 
virksomhed," by K. Schonheyder, 
review, 474 
"Latter-Day Problems." by J. L. 

Laughlin, review, 469. 
"Monopole, Kartelle, und Trusts." 

by H. Levy, note, 72.1 
"Positive Theorie des Kapitales," 
by E. von Bohin Bawerk. note, 
715 
"Principles of Economics," by E. R. 
A. Seligman, note. 461 
Education. "Educational Issues in the 
Kindergarten," bv Susan E. Blow. note. 
1S7 

"Education for Efficiency,'" bv C. W. 

Eliot, note, 194 
"Education for Efficiency." by E. 

Davenport, note, 452 
"The Nature Study Idea." by L. H. 

Bailey, note, 185 
"Systematic Study in the Element- 
ary Schools," bv Lida B. Earhart. 
note. 194 
Electric Railway Stocks, 657-73. City 
lines. 657 : basis of valuation, 658 : 
unfavorable conditions. 659 : fixity of 
fares. 660 ; cost of service, 662 : un- 
fortunate position of street railways, 
663 ; limited increase in revenue. 664 : 
suburban electric roads. 665 ; road 
beds. 666 : modern or true interurban. 
667 ; regions of interurban develop- 
ment, 66S ; improvements due to inter- 
urban development. 669 : freight busi- 
ness and interurban service, 670 : best 
types of interurban. 671 : methods of 
financing. 672 ; interchange with steam 
roads. 673 

"Electrification of Railway Termi- 
nals." note. 194 

"Factory Legislation. A History of." by 
B. L. Hutchins and A. Harrison, 
note, 199 
Finance. "Beteilungs- und Finanzier- 
ungsgessellschaften." by R. Liefmann. 
review. 470 

"The Cycles of Speculation." by T. 

Gibson, note. 454 
"Introduction to Public Finance." 

by C. C. Plehn. review. 472 
"Investigations in Currency and 



Finance," by W. S. Jevons. review, 
742 
Financial Institutions. Stocks of, 
079-SS. Inactive character. 079 ; char- 
acter of investments in financial insti- 
tutions, 680 ; marketability. 0S2 ; the 
average bank, 683 ; average gross re- 
turns. 684 ; revenue and expenditures, 
685 : state and savings banks, 0S0 ; 
life insurance stocks. 687 ; fire insur- 
ance stocks, 6S7 : surety, casualty, title 
insurance and mortgage companies, 
OSS 
Foreign Relations. "The Valor of Ignor- 
ance," by II. Lea. note. 725 
! Forests. Forestry Policy of Typical 
States— .New York. 248-51. New 
York forests, 248 ; protection of for- 
ests, 250 

Forestry Policy of Typical 
States — Pennsylvania. 252-59. 
Pennsylvania forests. 252 : trees 
of Pennsylvania forests, 253 ; leg- 
islation, 255 ; advantages of for- 
ests, 257 
Forest Resofrces and Conserva- 
tion, 67-76. Original forests. 67 ; 
present southern forests, 69 ; 
southern forest ownership. 71 ; 
advantages of the South, 72 ; con- 
servation, 74 
National Forests as Recreation 
Grounds. 241-47. Object of na- 
tional forests. 241 ; scenery, 242 ; 
recreation. 245 ; future use of for- 
ests. 240 
State Forests of Michigan. 260- 
65. Climate and forests, 261 ; 
Michigan trees, 262 

Geology. "Prehistoric Siskiyou Island 
and the Marble Halls of Oregon," by 
C. B. Watson, note. 206 
Government. "Causes and Conse- 
quences," by J. J. Chapman, note. 189 
"The Development of the State." by 

J. Q. Dealev. note, 192 
"The Essentials of Self-Govern- 
ment." by E. T. Powell, review, 
473 
"The Hindrances to Good Citizen- 
ship." by J. Bryce, note. 451 
"The House of Lords," by J. Wylie, 

note. 733 
"Modern Constitutions," by L. Als- 
ton, note, 715 
"Police Administration." by L. H. 

Fuld. note. 720 
"Selected Articles on the Election 
of United States Senators." by C. 
E. Fanning note. 719 
Great Britain. "The British Isles." by 
Lettice Jowitt. note. 723 

"England in the Age of Wycliffe," 
by (i. M. Trevelyan. review. 74-1 
"Great and Greater Britain." by T. 
E. Barker, review. 736 

History. American. 

"A Child's Guide to American His- 
tory." by H. W. Elson. note. 718 

"The Conquest of the Great North- 
west." bv Agnes C. Laut. note. 2<»l 

"Division and Reunion. 1829-1909," 
bv W. Wilson, review. 479 



(753) 



Index of Subjects 



"Minutes of the Commissioners for 
Detecting and Defeating Conspira- 
cies in the State of New York," 
by V. H. Palsito, note, 457 
"New Hampshire as a Royal Prov- 
ince." by W. H. Fry, note, 195 
"The Origins of the British Colonial 
System, 1578-1660," by G. L. Beer, 
note, 186 
"The Province of New Jersey, 1664- 
1738," by E. P. Tanner note, 206 
"Selections from the Economic His- 
tory of the United States," by G. 
S. Callender, review, 207 
"The Story of the Great Lakes," by 
E. Channing and Marion F. Lans- 
ing, note, 188 
History, English. 

"The Cambridge Modern History, 

Vol. XI, review, 737 
"Readings in English History," by 
E. P. Cheyney, note, 189 
History, General. 

"Historical Essays," by J. F. 
Rhodes, note, 459 
"Human Economics : Natural and Cos- 
mopolitan Economy," by A. H. Gibson, 
review, 212 
Hygiene. "Rural Hygiene," by I. W. 
Brewer, note, 715 

Immigrant. Our Recreation Facilities 
and the Immigrant. See Play. 

"The Immigrant Tide. Its Ebb and 
Flow," by E. A. Steiner, review, 
474 
"Income Tax, Selected Articles on the," 

by Edith M. Phelps, note, 729 
"India, Its Life and Thought," by J. P. 
Jones, note, 199 

"Further India," by H. Clifford, 

note, 189 
"Trans-Himalaya," by S. Hedin, re- 
view, 741 
Industry. Effects of Industrialism 
Upon Political and Social Ideas, 
134-42. Southern provincialism, 134 ; 
decline of intolerance, 136 ; introduc- 
tion of industry, 137 ; manufacturing 
districts, 139 ; Negro in industry, 140 
"Industrial Problems," by N. A. 
Richardson, note, 459 
Industrial Stocks as Investments, 
674-78. Great importance of, 674 ; 
freedom from legislative restrictions, 
675 ; increase in scientific methods of 
manufacture, 676 ; relations of the 
tariff and industrial companies, 677 ; 
preferred shares, 677 ; typical indus- 
trial stocks, first dividends paid on, 
678 

"The Industrial System," by J. A. 

Hobson. note, 198 
"La Protection L'egale des Travail- 
leurs et le Droit international 
ouvrier," by P. Pic. note. 204 
- "Women in Industry," by Edith Ab- 
bott, note, 449 
"Initiative and Referendum. Selected 
Articles on the." by Edith M. Phelps, 
note. 729 
Insurance. "Les Lois d' Assurance Ouv- 
riere a l'Etranger." by M. Bellom, note. 
450 



i International Law. "Consular Cases and 

Opinions," by E. C. Stowell, note, 462 

"International Law," by T. Baty^ 

review, 464 
"The Law of War Between Belliger- 
ents," by P. Bordwell, note, 187 
"Letters to the 'Times' upon War 
and Neutrality, 1881 to 1909," 
by T. E. Holland, note, 723 
"International Year Book," by F. M. 
Colby, note, 452 

Labor. Labor Supply and Labor Prob- 
lem, 143-49. Resources, 143 ; Negro 
population, 145 ; agricultural laborers, 
146 ; inefficiency of labor, 147 ; need 
of training, 148 

Law. "General Theory of Law," by N. 
W. Korkunov. review, 743 

"Liberalism and the Social Problem," by 
W. S. Churchill, review, 740 

Market News, Sources of, 617-26. 
Sources, 617 ; news tickers and card 
system, 618 ; daily, weekly and 
monthly papers, 620 ; important peri- 
odicals, 621 ; manuals and miscel- 
laneous sources, 622; documents and 
financial reports, 623 ; investigations, 
624 ; rumors and write-ups, 624 
"Marriage as a Trade," by C. Hamilton, 

note, 196 
"Medical Sociology," by J. P. Warbasse, 

review, 215 
"Mexico." by C. R. Enock, review, 467 
"Historia de Neuvo Leon," by G. 

Garcia, note, 195 
"La Revolucion de Ayutla," by G. 

Garcia, note, 196 
"Leona Vicario," by G. Garcia, note, 

453 
"Mexico," by T. P. Perry, note, 731 
Mining Investments, The Wrongs and 
Opportunities in, 689-98. Large 
profits in mining investments, 689 ; 
speculation element, 690 ; dishonesty 
in mining schemes, 691 ; how to esti- 
mate value of stock, 692 ; importance 
of mechanical work. (593 ; fraudulent 
mining schemes, 694 ; questionable 
financiering, 695 ; attractions of min- 
ing investments, 696 ; qualities of 
tested mining stock. 697 ; legislation 
against misuse of funds, 698 
Municipal Government. "Chapters on 
Municipal Administration and Ac- 
counting," by F. A. Cleveland, review, 
208 

"Government of American Cities," 

by H. E. Deming, note, 193 
"Introduction to City Planning," by 

B. C. Marsh, note. 202 
"A Modern City," by W. Kirk, note 

200 
"Municipal Government." by F. J. 

Goodnow, review. 213 
"Proceedings of the Fifteenth An- 
nual Meeting of the National 
Municipal League," by C. R. 
Woodruff, review, 745 
"Selected Articles on Commission 
Plan of Municipal Government," 
by E. C. Robbins, note, 460 



(754) 



Index of Subjects 



Music. Music and Refreshments in 
Parks, 386-92. Public musical enter- 
tainments in Europe and America, 
386 ; kind of music needed, 388 ; popu- 
lar and classical music, 399 ; relation 
of refreshments and music, 391 ; sing- 
ing, 391 

Negro. The Negro and Agricultural 
Development, 8-15. Need of Negro 
labor, 8 ; Negro's part in history, 10 ; 
plantation settlement, 12 ; Negro labor 
in the future, 14 

The Negro's Part in Southern 
Development, 124-33. Percentage 
of Negro population, 124 ; Negro 
in southern development, 125 ; 
Negro at the Civil War, 127 ; 
property owned by Negroes, 129 ; 
Negro banks. 13U ; industrial or- 
ganization, 131 
"The Story of the Negro," by B. T. 
Washington, review. 478 
New York. "A Political History of the 
State of New York," by De A. S. Alex- 
ander, review, 735 

Parks. The Boston Metropolitan 
Park System, 280-86. Difficulty of 
securing parks. 280 ; agitation for 
parks, 281 ; landscape gardening, 284 

City Planning and Philadelphia 
Parks, 287-96. Need of parks for 
children, 287 ; the streets and 
children, 288 ; planting of trees, 
290 ; Philadelphia development, 
291 ; historical parks, 293 

Our National Parks and Reserva- 
tions, 231-40. Variety of forests, 
231 ; area of national parks and 
monuments. 233 : parks and mon- 
uments described, 235 

The Parks and Recreation Facili- 
ties in the United States, 217- 
28. Recreation facilities. 217 ; na- 
tional forests, 218 : state forests, 
221 ; city parks, 224 

The Park Movement in Madison, 
Wis., 297-303. Private enterprise, 
297 ; park purchase. 298 ; drive- 
ways, 301 ; effects of parks, 302 

Park System of Essex County, 
N. J., 206-72. County control of 
parks. 266 ; legislation, 267 : work 
of the commission, 268 ; cost of 
parks. 270 

The Park System of Hudson 
County, N. J.. 273-79. Congested 
population and parks, 273 ; park 
purchase. 275 

Recreation Developments in Chi- 
cago Parks. 304-21. Parks as 
recreation centers. 304 ; chief Chi- 
cago parks. 305 ; park commission. 
307 : recreation centers, 310 ; use 
of facilities. 312 : effect of parks. 
315 ; children and parks, 317 ; 
park festivals, 321 
Peace Movement. "The Great Design 
of Henry IV," by E. D. Mead, note. 
727 

"American Addresses at the Second 
Hague Peace Conference," by J. 
B. Scott, note, 730 



"Peru," by C. R. Enock, note, 719 

"Peru," by G. Guinness, note, 455 
"Philippines, Plain American Talk in 

the." by M. G. Johnston, note, 199 
Plantation System, The Decadence of 
the, 37-41. New labor problems, 37 ; 
advantages of plantation system, 39 ; 
disturbance caused by Civil War, 30 
Play. The Columbia Park Boys' Club, 
A Unique Playground, 436-40. Play 
clubs, 436 ; the club and the school, 
438 ; walking trips, 439 

Educational Value of Public Rec- 
reation Facilities, 350-56. What 
are play facilities, 350 ; parks and 
nature study, 352 ; decoration of 
parks, 354 ; music, 355 
Our Recreation Facilities and 
the Immigrant, 357-67. National 
games. 357 ; games of immigrants. 
358 ; European amusements, 359 ; 
importance of play for children, 
360 ; noonday play, 362 ; park 
concerts, 363 ; family recreations, 
364 
Play and Social Progress, 325-33. 
Play in poor families. 325 ; need 
of play for full development, 326 ; 
lack of play spirit, 328 ; the play- 
ground. 331 
The Social Significance of Play, 
368-73. Child labor and its effect, 
368 ; protection of women, 369 ; 
educational value of play, 370 ; 
misguided play, 371 
The Unused Assets of Our Public 
Recreation Facilities, 382-85. 
Diversity of recreation, 382 ; in- 
complete use of facilities, 383 ; 
facilities that should be used, 384 
Playgrounds. The Playground as a 
Social Center, 345-49. Social char- 
acteristic, 345 ; parks should be se- 
cured at once, 346 ; use of play cen- 
ters by different nationalities, 348 
The Playground for Children at 
Home, 374-81. Play in congested' 
towns, 374 ; play characteristics 
of city children, 375 ; playgrounds 
and schools, 376 ; advantage of 
supervision of playgrounds, 377 ; 
physical and moral dangers, 379 ; 
plav classes, 380 ; subnormal chil- 
dren, 380 
Public Provision and Responsi- 
bility for Playgrounds. 334-44. 
Origin as private philanthropy, 
334 ; theory of play, 335 ; space 
for play. 336 ; arguments for play, 
338 ; possible solution, 339 ; what 
facilities are needed, 341 ; play 
extension, 343 
Politics. "American Foreign Policy," 
note. 185 

New Politics for the South, 172- 
83. Peculiar character of party 
divisions. 172 ; one-party district. 
173 : appointments in the South. 
175 ; white supremacy. 176 ; 
Negro in politics. 177 : exaggera- 
tion of the Negro question, 178 : 
new issues in the South. 181 : 
the break-down of democracy. 183 
Population. "A Century of Population 



(755) 



Index of Subjects 



Growth, 1790-1900," by W. S. Ros- 
siter, note, 205 

Ports. Future of the South Atlantic 
Ports, 120-23 

Post Office. "Weltporto-Reform," by A. 
Jiirgensohn, note, 724 

Preferred Stock as Investments, 545- 
53. What is preferred stock, 545 ; 
terms of preference, 546 ; examples, 
547 ; stock investments compared, 
548 ; legal characteristic, 549 ; advan- 
tages of standard preferred stock. 
550 ; equities back of, 551 ; industrial 
preferred, 552 

Psychology. "The American People," 
by A. M. Low, review, 470 



Railroads. "Labor and the Railroads," 
by J. O. Fagan, review, 467 

Railroad Stocks as Investments. 
646-56. What is an ideal invest- 
ment, 646 ; widespread stock hold- 
ings, 647 ; high degree of security, 
648 ; value of typical securities, 

649 ; rise and fall of stock prices. 

650 ; the cycle theory, 651 ; world- 
wide conditions affect prices, 652 ; 
fluctuation in share prices, 653 ; 
relation of prices and value in 
undesirable shares, 654 ; contra- 
dictions in price fluctuation, 655 

"Railwav Rates," by J. Horrocks. 

note, 198 
Southern Railroads and Indus- 
trial Development. 99-104. 
Growth of southern railroads, 99 ; 
traffic in the South, 101 ; railroad 
materials, 103 
Real Estate. "La Propriedad Immobili- 

aris," by J. Bianco, note, 186 
Reclamation and Drainage, 77-80. Pri- 
vate land ownership, 77; undeveloped 
lands, 78 
Recreation. The Appalachian Moun- 
tain Club, 393-400. Formation of 
mountain clubs, 391 ; form of organi- 
zation, 395 ; publications, 396 ; camp- 
ing facilities, 397 ; mapping of trails, 
398 

The Field and Forest Club of 
Boston, 409-19. Organization of 
club, 409 ; club calendar, 410 : 
entertainments connected with 
club work, 416 
The "Heide Park" of the Society 
for the Advancement of the 
Commonweal in Dresden, 441-48. 
Park facilities, 441 ; the work of 
Carl Bohmcrt, 442 ; transporta- 
tion facilities. 443 : appreciation 
of opportunities, 444 ; "natur- 
theater," 446 
Recreative Centers of Los An- 
geles, Cal., 426-35. Varied char- 
acter, 426 ; small gardens, 427 : 
club houses, 428 : gymnasiums. 
429 : co-ordination of recreative 
facilities. 430: national play fes- 
tivals. 432 ; efficient supprvision. 
433 
The Sierra Club, 420-25. Cali- 
fornia recreation facilities, 420 : 
annual outings, 421 ; personnel. 
422 ; why parks should be used by 

(756) 



all, 
424 



423 ; mountaineering clubs, 



The Southern Appalachian Park 
Reserve as a National Play- 
ground, 401-08. Economics and 
recreation in the conservation 
movement, 401 ; need of reserva- 
tion in the Appalachians, 403 ; 
varied characteristics, 405 ; fish- 
ing. 406 ; camp life, 407 
"Religion of the Future," by C. W. Eliot, 

note, 717 
Roads. Good Roads Movement in the 
South, 105-13. Need of good roads, 
105 ; cost of transportation on various 
roads, 107 ; improved roads in the 
South, 109 ; characteristics of south- 
ern roads, 111 
Rome. "Characters and 
Roman History," by G. 
view, 209 

"The Greatness and 
Rome," Vol. V, by 
review, 209 
"Social Life at Rome in the Age of 
Cicero," by W. W. Fowler, review, 
211 
"Society and Politics in Ancient 
Rome," by F. F. Abbott, note, 449 



Events of 
Ferrero, re- 



Decline of 
G. Ferrero 



Securities and Stock Exchanges, 

Bibliography on, 699-714 
Security Prices and Values, Influ- 
ences Affecting, 627-35. Difference 
between value and price, 627 ; panics, 
628 ; panic of 1907, 629 ; Dun index 
numbers, 630 ; present prospects, 632 ; 
comparison of prices, 635 
"Slavery of To-day," by C. A. Swan, 
note, 206 

"Virginia's Attitude Towards Slav- 
ery and Secession," by B. B. Mun- 
ford, note, 204 
"Social Forces," by E. T. Devine, note, 

717 
Socialism. "Das philosophisch-okonom- 
ische System des Marxism us," by E. 
Hammacher, review, 468 

"Historv of Socialism in the TJnifpd 

States," by M. Hillquit. note, 197 

"Socialism for Students." by J. E. 

Cohen, note, 452 

"Zur Entwicklungsgeschichte dos 

Sozialismus," by O. Warschauer, 

note, 732 

Sociology. "The Approach to the Social 

Question." by F. G. Peabody, note, 458 

"Day in Court." by F. L. Wellman, 

note, 732 
"Each for All and All for Each," 

by J. Parsons, note, 729 
"Expansion of Races," by C. E. 

Woodruff, review. 215 
"The Family and the Nation." by 
W. C. and Catharine D. Whet- 
bam, note, 462 
"The History Sheet or Case-Paper 
System." by H. F. Aveling and 
others, note, 449 
"Home and School Fnitod in Widen- 
ing Circles of Inspiration and 
Service," by Mary V. Grice, note, 
454 



Index to Subjects 



"How to Help," by Mary Conyngton, 

note, 717 
"The Human Species," by L. Ilopf, 

note. 198 
"The Junior Republic," by W. R. 

George, note, 721 
"The Marx lie Knew." by J. Spargo, 

note, 401 
"The Modern Mother." by II. L. 

Gordon, note, 454 
"Parenthood and Race Culture." by 

C. W. Saleby, note. 205 
"The Promise of American Life," 

by H. Croly, note, 191 
"Report on National Vitality — Its 
Wastes and Conservation." by I. 
Fisher, note, 453 
"Searchlights," by G. W. Coleman, 

note. 717 
"Social Duties from the Christian 
Point of View." by C. R. Hen- 
derson, note, 197 
"Social Reform and Reformation," 

by J. S. Schapiro, note. 400 
"Social Service and the Art of Heal- 
ing," by R. C. Cabot, note, 451 
"Sociology," by J. Q. Dealey. review, 

405 
"The Sociology of the Bible," by 

F. S. Schenk, note, 401 
"Source Book for Social Origins," 

by W. I. Thomas, review. 470 
"The Spirit of Youth and the City 
Streets," bv Jane Addams, review, 
403 
"A Study of the Population of Man- 
hattanville," bv H. B. Woolston, 
note, 403 
"Transactions of the American So- 
ciety of Sanitary and Moral 
Prophylaxis," note,' 732 
Southern Resources. Sure Bases of a 
Greater South, 00-00. Coast line, 
00 ; navigable streams, 01 : water 
powers. 02; minerals and forests, 03; 
agricultural lands, 05 
"Spain of the Spanish." by J. Villiers- 

Wardell, note, 402 
"Travels in Spain," by P. S. Marden, 

note, 457. 
Stock Broker, the Purchase or Sale 
of Securities Through a, 500-24. 
Ease of transfer of securities, 500 ; 
organization of stock exebange, 5<>7 : 
methods of buying and selling, 508 ; 
legal nature of contracts. 509 ; rules of 
stock exchange, 510 ; payments to stock 
brokers, 511 : legal position of stock 
broker, 512 ; technical terms used, 513 ; 
legal nature of the order, 515 ; taking 
of the order, 510 ; legal effect of 
"taking." 517: carrying out tin- 
order. 518 : customs controlling 
contract. 519 ; exactness required, 520 ; 
commission notice. 521 : performance 
of contract, 522 ; simplicitv of bargain. 
523. 
Stockholders' Rights, the Declara- 
tion and Yield of. 554-78. What is a 
"right." 554 ; instances of use of 
rights. 555 : procedure of issuance, 
550 : dividend return, 557 ; rights as 
distribution of earnings, 558 ; arbitrage 



jurors, 559 ; rights as a means of rais- 
ing money. 500 ; yield of rights, 501 ; 
rights as decreasing cost, 503 : typical 
examples, 505 ; tables illustrating 
value of rights. 508. 

Stock Market, Scope and Functions 
of the, 483-505. Security of stocks 
and bonds, 483 ; distribution of stock 
ownership, 484 ; comparative impor- 
tance of railroads and industrials, 
480 ; extent of stock holdings in vari- 
ous companies. 480 ; stock exchanges 
of the world. 487 ; functions of stock 
exchanges, 489 ; enumeration of ser- 
vices, 490 ; stock exchange regulations, 
491 ; arbitration of disputes, 492 ; 
fluidity of capital, 493 ; organization 
of capital for investment, 494 ; pro- 
tection to holdings in securities, 495 ; 
law of price movements. 490 ; position 
of the "bear" in the market, 497 ; 
short selling, 497 ; transfer of securi- 
ties, 499 ; payments by securities, 500 ; 
securities and foreign exchange, 501 ; 
arbitrage, 502 ; curb market, 503 ; dis- 
advantages of curb market, 504. 

Stock Security Values, Economic 
Crises and, 030-45. Psychological 
element in crises. 030 ; currency and 
capital crises, 037 ; pessimist and op- 
timist, 038 ; eras of prosperity, 039 ; 
theories of Mill and Jevon, G4o ; 
commercial crises on stock ex- 
changes, 041 ; boom conditions, 042 ; 
speculation the result of foresight, 
043 ; fall stringency, 044. 

Stocks and Their Features — A Divi- 
sion and Classification, 525-44. 
Classes of stocks, 525 ; par value. 
520 ; methods of issue, 527 ; full-paid 
and assessable stock, 528 ; rights and 
limitations attaching to stocks, 529 ; 
common, deferred, and preferred' stock, 
529 ; cumulative and non-cumulative 
stock, 531 ; voting rights, 533 ; divi- 
dend funds, 534 ; characteristics of 
preferred stocks, 535 ; convertible 
stocks, 537 ; participating preferred 
stocks, 538 ; income from typical 
stocks, 539; special stocks, 540 ; guar- 
anteed stock, 541 : fouuders* stock. 
542 ; debenture stock, 543. 

Sugar Cane. The Sugar Cane Indus- 
try, 25-30. Introduction of sugar 
cane, 25 ; sugar cane belt, 28 ; process 
of growth. 30 ; cost of production. 32 ; 
importance, 33. 

Tariff. "The Passing of the Tariff," by 
R. L. Bridgman. note. 188. 

Taxation. "The A B C of Taxation," 
by C. B. Fillebrown. note. 195. 

"The Law of Taxation in Pennsyl- 
vania." by F. M. Eastman, re- 
view. 400. 

Trade. Barometric Indices of the 
Condition of, 593-010. Comparative 
statistics of condition of trade, 593 ; 
fundamental statistics of. 594 ; statis- 
tics on which estimates are based 
590 ; agricultural crops and trade, 
599 ; swings in prices. 000 ; profits in 
investments, 001 ; theory of invest- 



(757) 



Index to Subjects 



ments, 602 ; reaction equals action, 
603 ; importance of including all ele- 
ments, 605 ; conclusion on statistics, 
606 ; mechanical work, 608 ; need of 
industrial organization, 610 ; sources of 
information, 611 ; possibilities of pro- 
fits, 612 ; rule for bankers and mer- 
chants, 613 ; rule for bond dealers 
and brokers, 614 ; conditions for pros- 
perity, 615. 
Trade Unions. "The Printers — A Study 
in American Trade Unionism," by G. 

B. Barnett, note, 450. 

Travel. "A Southerner in Europe," by 

C. H. Poe, note, 729. 

"The Old Town," by J. A. Riis, note, 
459. 
Turkey. "The Awakening of Turkey," 
by E. F. Knight, note, 455. 

"A Military Consul in Turkey," by 

A. F. Townshend, note, 731. 

"Unemployment — A Problem of Indus- 
try," by W. H. Beveridge, review, 
207 

"Problems of Unemployment in the 
London Building Trades," by N. 

B. Dearie, note, 453 

Wages. "Efficiency as a Basis for Oper- 
ation and Wages," by H. Emerson, 
note, 718. 



Water Power. The Power Resources 
of the South, 81-98. Extent of, 81 ; 
future water powers, 82 ; water power 
control, 84 ; advantages of water 
power, 86 ; limitations of water pow- 
ers, 89 ; southern water powers, 90. 
Waterways. "The Columbia River," by 
W. D. Lyman, note, 726. 

The Inland Waterways of the 
South, 114-19. Southern navi- 
gable rivers, 115 ; need of im- 
provement, 117. 
"Remaking the Mississippi," by J. 
L. Mathews, note, 203. 
Wealth. "The Economic Causes of 
Great Fortunes," by Anna Youngman, 
note, 733. 

"History of the Great American 
Fortunes," by G. Myers, note, 
728. 
Welfare Work. "Social Engineering," 

by W. H. Tolman, review, 744. 
Woman. "The Girl and the Woman," 

by Caroline W. Latimer, note, 725. 
Woman Suffrage. "The Wrong and 
Peril of Woman Suffrage," by J. M. 
Buckley, note, 716. 

"Equal Suffrage " by Helen L. Sum- 
ner, review, 475. 
"Women and the Trades, Pittsburgh, 
1907-08," by Elizabeth B. Butler, re- 
view, 465. 



(758) 



SPECIAL VOLUMES 



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The Government in its Relation to Industry 

American Colonial Policy and Administra- ci ^ d p 

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Foreign Policy of the United States— Political j InsuraDce 

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Tariffs, Reciprocity and Foreign Trade 
Tariff Revision 
Railway and Traffic Problems 



! Industrial Education 

1 

! Bonds as Investment Securities 

i Lessons of the Financial Crisis 



Child Labor, Vols. I, II, in, IV and V { Labor Problems, Vols. I and II 

Race Improvement in the United States » The Improvement of Labor Conditions in the 

Social Legislation and Activity United States 

Problems in Charities and Corrections j Labor and Wa 8 es 

Philanthropy and Penology \ American Waterways 

Woman's Work and Organizations j Regulation of the Liquor Traffic 

Social Work of the Church ; Conservation of Natural Resources 

Political Problems Chinese and Japanese in America 

Municipal Ownership and Municipal Fran- ! Tne New South 

chises j Public Recreation Facilities 

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